Monday, June 8, 2015

Window Dressing And Evergreening

Banks Book Growth in Deposits By Window Dressing And Reduce NPA By Evergreening and by restructuring of loans . Chiefs of banks has been master in inflating profit by fraudulently reducing provisioning . They propagate the same culture down the line .They use the income generated by lending in writing off bad loans .They in this way  deprive investors from adequate dividend and fail to pay adequate interest on deposits.  

STILL Bank Chiefs Are Awarded and in the same way officers down the line are promoted only on the basis of their capacity to inflate business by window dressing and hide NPA by fraudulent methods.


I have written several times in the past on this matter, RBI has several times accepted the bitter truth of culture of inflating profit by bankers and Finance Minister has through MOF issued stern guidelines many times in the past. Still there is no reduction in the foul game. RBI and MOF think it wise to remain silent spectators and issue a false warning to safeguard them in case of need.

After all who will bell the cat?

Will bankers continue to cheat taxpayers, investors and customers of the banks in the same way and same fashion?
Click Here To Read More on Bad Debts and Window Dressing

Hidden Loan is Like Cancer in Banks

If bitter truth of business is analysed properly at least for last ten years , it will be proved that PSBs have indulged in bad practice since long despite all preaching by RBI and MOF . Scam is deep rooted and loss caused to customer , investors and taxpayers in huge , greater than all scams taken together.

Trade Union Leaders who are supposed to protect banks from corrupt officials have also worked hand in glove with top officials. They too failed to protect honest officers . They too promoted bad culture in banks and hence there is no doubt in it that they too are responsible for making the banks so much sick and for critical position of banks in public sector. It is they who in nexus with management damaged the fundamentally good  culture in banks and allowed private banks to grab entire business of PSBs. 

Window Dressing in PS Banks and Its Culprits :  Will Modi Government  Be Successful in Reining This Malpractice?-By Rajesh Goyal 

Today (5th June, 2015)  when I saw an article under the heading India to tighten screws on banks' 'window dressing' of accounts in Times of India (Source Reuters),  it reminded me of my active days in service.   At the same time it reminded me of numerous statements issued by RBI, Govt of India, Bank Managements during last over a decade, pledging that they will curb this menace.  However, none of them have ever taken any serious steps to curb this growing trend, rather behind the curtains they have encouraged window dressing to get promotions and show that banking sector in India is growing consistently and is healthy state.    In reality, banking sector was becoming weaker and weaker and now we have reached a stage where financial stability of PS Banks is at precarious condition, and there are dangers of collapsing the same.   In recent wage revision discussions, Banks (through IBA) have admitted that a number of banks are not even in position to give a reasonable wage hike to serving bankers and meet the pension liabilities of the retired work force.   This shows the double speak of Bank top management, RBI and GoI,  wherein they talk of no serious threat to banking system when they talk of growth of banking sector, but cry of weak financials when a reasonable wage hike / pension is asked by employees.
Now once again there are statements from Government circles that they intend to  curb this practice of window dressing.    It is doubtful that this is a serious statement and will be followed to logical end.   Even if GoI intends to do so, whether manipulative bankers, right from Branch Managers to CMD,  will allow this to happen.  A large number of these people have got promotions and reached top positions,   purely based on their manipulative skills in window dressing.
Although I have limited experience of window dressing, yet I have experience to watch these / asked by higher authorities to manipulate these  at branch level, regional level and HO level.  Once you are close to financial year end,  we see all around discussions as to how to meet the targets by manipulating the accounts.

In 2012, we have uploaded an article at AllBankingSolutions.com under the heading : Window  Dressing in Banks  -  Dishonest Officers Get Promotion; CMDs and EDs Get Monetary  Benefits BUT  Honest Officers / Staff Get Lower Salary Increases”.    

 

This three year old article is not only still valid but situation has worsened in these 3 years and banks have become financially  more precarious as top management has milked the banks more during these three years to serve their vested interests and get promotions and jobs after retirement, rather than curb such malpractices.

 

 

What is Window Dressing ?

 

In simple words, we can say Window dressing is a technique used by management to manipulate financial statements and reports to show more favorable results for a period.  As per the present practice, the financial status of banks is evaluated every quarter (March-end, June-end, September-end and December-end), but the major targets are evaluated at the end of the financial year for which CMDs have given commitment or sometimes even MoU to GoI to achieve such targets.  Thus, towards the end of the financial year, there is maximum pressure on all officers of the bank to ensure that targets are met by hook or crook.  Thus, at the point of evaluation i.e. end of financial year, all banks try to boost their deposit, credit figures through artificial means.   At the same time, officers are cajoled, threatened to ensure that NPA are suppressed.  Based on the art of manipulation, the officers of banks get promotion and top brass is able to earn lakhs as incentive.
What is the status of Window Dressing in Banks in India :
Window-dressing in India is now almost known  to everybody.   It is an open secret.  All PS (some private banks too) banks indulge into window dressing not only at year end but also at quarter ends.     Only difference between banks is that the degree of window dressing vary from bank to bank.   It has now become so deep rooted that  all analysts accept even the audited figures of deposits, credit and NPA of banks in India  with a pinch of salt.   Nobody is ready to believe that these figures are the true reflection of the bank’s growth or stability. 

Broadly speaking, there are four main areas for window dressing :-

 

(a)  Deposits

(b)  Credit

(c)   NPAs

(d)  Manipulation of provisions to boost profits


What is the Extent of Window Dressing At Present :
Frankly speaking, it is impossible to find out what is the extent of real window dressing as Banks in public take a stand that they do not indulge into any window dressing.   However, the comparison of the various figures as on 31st March of a year and a fortnight or a month later shows as to how much they have manipulated.  However, on certain parameters like NPA and profits, the window dressing remains under the carpet for long times.

In the above referred report, Reuters has given a peep into the effect of window dressing by banks in India in March 2015.   The report says :

       (a)Some Rs 2,30,000 crores  or 85 percent of the loans raised in the last fortnight of March, 2015 were reversed in April 2015.  
 (b)Similarly, nearly 60 percent of the  Rs. 3,30,000 crore of deposits were reversed.
 
The figures are mind blowing but these are very well  known to regulator (RBI) and GoI as it is continuing for years now.   Although RBI keeps on issuing circulars, advisories  and statements, BUT  they have NEVER  dared to take action against any CMD or ED for window dressing.   All those manipulative top bosses have always got their promotions through fast track and some of them are even offered jobs after their retirements as a reward for their manipulative skills in window dressing.   Some of such CMD even found job in RBI !!
 
Is RBI Hand in Glove with PS Banks for Window Dressing ?

 I consider RBI to be hand in glove with bank management in ensuring window dressing though in public they keep on crying it foul.   In the last few years,  RBI has issued numerous circulars / advisories / statements warning banks to stop this malpractice.   However, let me quote one statement from the news that appeared in The Hindu on 1st April 2014 (i.e. more than a year back) under the heading Rajan warns banks against year-end window-dressing”, wherein RBI Governor, Mr  Rajan,  has shamelessly elaborated how banks are manipulating their balance sheets in the following words :-

 

“What happens towards the end of the year is banks are trying to build a certain kind of balance sheet for a variety of reasons…. (wherein) some lenders reduce their risk weighted assets to lower their capital requirements, while some State run banks increase their assets in order to meet performance targets set by the government”.    Mr Rajan also told that such adjustments by banks affect various market segments and cited volatility in certificate of deposits starting even from February.   He also threatened banks that they will not be bailed out for following such policies.

 

The above statement is only a reminder that RBI Governor is well aware of the methods used by banks to manipulate balance sheets, inspite of the fact that these banks are listed on stock exchanges and have money of public invested in such stocks.   The regulator tells the press with immunity as to how PS banks are manipulating their balance sheets.      Great Regulator.   This is the “Greatest Transparency” in financial sector of India, not found anywhere else in the world.     After one year of above threatening statement of RBI Governor (regulator of the banks), the situation is same or even worse.  All PS Banks with the blessings of their CMDs / EDs / Statutory Auditors  have openly flouted the norms for window dressing in March 2015 (confirmed by report of Reuters quoted above) and our helpless RBI Governor only watches from the sidelines whereas bank management giggles.   Mr Rajan does not have the powers or guts to take action even against one CMD or even dressing down  in public of any top official of even the weakest PS Bank.  Kudos to all the authorities who have been assigned the job to check the banks.

 

In the above environment now, Modi Government officials are again talking about “overhauling annual targets for public sector lenders”.   They are boasting that the new targets will focus on efficiency with objectives set around return on assets, or return on equity and controlling of bad debts”.     Interestingly, they intend to discuss these with the top officials of the banks who have all through career have learnt the art of window dressing to impress their bosses and get promotions, incentives and after retirement jobs.   Do you expect them to give any concrete suggestions which will unsettle their cart?   It will be nothing but eye wash.

 

The good suggestions can be given by only those who have NOT  been involved in such manipulation and are independent credentials with some international experience of best practices.  The present lot of people heading PS Banks have only experience of manipulating the balance sheets through window dressings, and thus an exercise of discussions with this coterie will be only a futile exercise.

 

The new Government at the Centre is yet to prove its credentials that it is serious to curb this malpractice which is at the root of most of the ills of banking industry.   I will delve upon the effects of these malpractices in my future articles.   I can only hope that GoI will be more serious this time and give free hand to RBI to deal with this menace of window dressing and Rajan shows that he means what he speaks.





NPAs may hit Rs 8 lakh cr by fiscal end-Financial Express-06.06.2015
Stressed assets of Indian banks could stand at an outstanding Rs 8 lakh crore by the fiscal end and a large part of this would have gone bad given that corporate balance sheets continue to be highly leveraged and profitability weak

Global rating agency Standard & Poor’s expects stressed assets of Indian banks to grow 11-12% in FY16. Currently, the value of stressed assets is Rs 7.4 lakh crore, going by the Reserve Bank of India’s (RBI) estimate that 10.9% of all loans are stressed. RBI deputy governor SS Mundra had said recently that as of March 2015, stressed assets in public sector banks were 13.2% while for all banks it stood at 10.9%. As such, the total stressed assets are at R7.44 lakh crore.
npa
This would mean an addition of around R1 lakh crore to the current pile. Stressed assets include both non-performing loans and restructured advances.

“Banks have to reduce loan growth in line with internal capital generation,” said Pandey in a conference call. In 2014-15, the aggregate net profit of 25 public sector lenders is lower than that of 13 private banks. As such, credit growth slumped to a 22-year low in FY15 and shrunk sharply in the first month of the current fiscal. As of May 15, banks’ loan book grew just 10.2%. Rising credit costs along with a slump in loan growth has crimped banks’ interest earnings as well.


The problem of rising bad loans has dogged banks since 2012-13, when highly leveraged companies to which banks had lent unfettered between 2008 and 2010, began showing stress on their balance sheets and defaulting on interest payments.
http://www.financialexpress.com/article/markets/npas-may-hit-rs-8-lakh-cr-by-fiscal-end/80941/

Bhushan Power gets lifeline, debt recast under 5/25 scheme

Bhushan Power & Steel (BPSL) will find it easier to service its loans now that bankers have approved a refinancing of its debt.

Bhushan Power & Steel (BPSL) will find it easier to service its loans now that bankers have approved a refinancing of its debt. A 15-member consortium has agreed to rework the repayment schedule under the 5/25 scheme, three bankers familiar with the discussions told FE. FE had reported in April that the Kolkata-based company was provided additional loans of around R5,000 crore.

Bankers have an exposure of about R35,200 crore to the company, excluding external commercial borrowings of $775 million. State Bank of India (SBI), the lead banker, has provided additional term loans, meant for the implementation of Phase VI of BPSL’s integrated steel and power plant in Odisha. BPSL commissioned the 3.5 mtpa plant in 2005

State Bank of India-hired sleuths fail to track Vijay Mallya properties

State Bank of India's (SBI) efforts to track down properties owned by Vijay Mallya through a detective agency yielded no results.

State Bank of India’s (SBI) efforts to track down properties owned by Vijay Mallya through a detective agency yielded no results. Sources said the detectives were unable to trace property registered in Mallya’s name.

According to sources, the bank had employed a detective agency to trace properties of Mallya in India. “The detectives looked for properties and found none were registered in his name,” said a banker, adding even the house where he stays is registered in someone else’s name and he is registered as a tenant.

“All his properties are registered either in the name of some company or some individual,” the source added.

Banks, using the ‘attachment before judgement’ clause of the civil procedure code (CPC), can attach properties other than the ones already attached. “Once we get the decree from the DRT, we try to sell that property through an e-auction,” SBI deputy managing director PK Malhotra told FE.

Lenders to Kingfisher have not been able to recover loans and their efforts have met with multiple hurdles. One of the assets that banks have been trying to auction is Kingfisher House in Mumbai and also trying to take possession of Kingfisher Villa in Goa.

Ex-FM Sinha warns against evergreening bad loans- Business Standard-06.06.2015
Former finance minister Yashwant Sinha on Friday cautioned banks to desist from evergreening of loans or restructuring of debts as it was not good for the health of financial sector. Evergreening refers to the practice of giving a fresh loan to repay an old one.

"If you (banks) think that there could be improvement in the economy, then by all means go ahead and restructure (certain loan portfolios) the debt but for God's sake, don't do evergreening," he said at a function organised by Assocham.

Non-performing assets (NPAs) are rising as the economy is not doing well, he said, adding it would automatically decline with more economic growth. Reserve Bank of India (RBI) Governor Raghuram Rajan had said dressing up of bad loans created bigger problems for the future. Sinha warned that lakhs of crores worth of stalled projects are bound to turn into NPAs, with banks having advanced money against these.


Arun Jaitley to meet PSB chiefs on June 12, NPAs to top agenda

Stemming the increase in non-performing assets (NPAs) and ways to address the issue of stalled projects, especially those pertaining to the infrastructure sector, are likely to top the agenda when finance minister Arun Jaitley meets the chiefs of public sector banks (PSB) on June 12

The government has already moved to a performance-based criteria of recapitalisation to reward efficient PSB’s with extra capital for their equity and help them further strengthen their position. Another concern will be the fall in profits of PSBs. FE had recently cited data from Capitaline to show that the net profit of 13 private sector banks for FY15 (at Rs 37,361 crore) could be more than that of the 24 PSBs (at Rs 34,641 crore), probably for the first time in the country’s banking history.

The minister could also take up the PSBs’ performance on current account and savings account (Casa) deposits, total advances, percentage of electronic transactions, return on assets, profit after tax, profit per employee (employee productivity), lending to minority communities and investor relationship as well as customer service. Besides, their performance on the government’s Jan Dhan/Jan Suraksha Yojana initiatives, issues related to regional rural banks and filling up vacancies in PSBs will be looked into.

A study by industry body Assocham, released on May 31, had said over 1,550 projects with investments worth about Rs 26.5 lakh crore were stuck as on December 2014 across 21 major states with infrastructure sector projects accounting for around 45% of them followed by manufacturing sector projects (28%).

The projects are stalled due to lack of clearances (environment and others), land acquisition problems, unfavourable market conditions, paucity of funds, waning of promoter interest and poor supply of fuel/feedstock/raw material, it said.

According to a finance ministry report, prepared for its review meeting with PSBs in March, 299 big ticket projects with a total outlay of Rs 18.13 lakh crore were stuck. To professionalise management, the government is expected to appoint new heads for three PSBs by filling up the vacancies within this month-end. Banking experts from private banks are also being considered for these top posts. The government has split the post of chairman and managing directors at PSBs.

Besides, it will soon operationalise the Bank Board Bureau (BBB) proposed in the Union Budget FY16. Apart from selecting PSB heads, the BBB will give recommendations on mergers and acquisitions (M&As), consolidation and capital raising.

Jaitley had said that to be compliant with Basel-III norms, there was a need to infuse Rs 2.4 lakh crore into PSBs as equity by 2018. Raising additional resources was needed meet this huge capital requirement, he said.

While preserving public ownership, with government holding at least 52%, the capital will be raised by increasing the public shareholding in a phased manner via sale of shares through retail to Indian citizens, he had said. The government is currently planning to effect phased dilution of its stake in PSBs to 52%.

No comments:

Post a Comment