Government Is Responsible

Now even Reserve bank of India has understood that problem of Non Performing Assets in Public Sector banks in particular and banks in general is much larger than what it is perceived and reflected in balance sheets of banks. Volume of aggregate NPA of banks shown through Balance Sheet is roughly around 5 percent of total assets only. Volume of stressed assets is around 10 percent. But actual volume of stressed assets including hidden stressed assets is not less than 25% and it may even go beyond 50% if Banks honestly stick to prudential guidelines issued by RBI in this regard.

Previous government also expressed worries on health of public sector banks on many occasion but took no substantial , effective and real step to reduce NPA . Rather they continued to add fuel to fire by forcing bank to lend without caring for health of their assets. They were more concerned about their political career than health of banks. Mr. Narendra Modi Prime Minister of India and Mr. Arun Jaitley Finance Minister of India have expressed concern on rising bad debts several times. Various Deputy Governors and Governors of RBI too expressed concerned about sickness of banks son many occasions during last two decades but did nothing to cure it either due to political pressure or in fear of exposure of banks or due to pressure from corporate houses. All preached sermons to banks to take care of assets but in fact all their actions were directed to affect adversely on continuously deteriorating health of banks and this is why Gross NPA and Stressed assets in bank continue to rise every quarter .

Lending to poor and backward section of the society is unavoidable because India is a poor and social welfare state . Lending to big corporate is necessary to achieve growth . Lending becomes dangerous only when recovery of money from defaulters become difficult and dependent on wishes of politicians or on inefficient and corrupt administrative and legal machineries. Loan is life if used for purpose loan is granted and repaid as per schedule .Loan is really growth oriented if it is used honestly for growth and for creation of assets. But if loan is sanctioned to please politicians and not repaid by borrowers , it affects the health of lender. One is slow poison and another is deep poison if lending takes place only to please politicians and only based on bribery , flattery and to boost up credit figures in balance sheet, health of assets has to become miserable .

In an interview with CNBC TV18 during first week of August 2015 ,Mr. Narayan Vaghul Former Chairman of ICICI bank says that the problem of bad loans in banking industry is much bigger than what is disclosed and the government needs to act urgently. He further adds that the government should learn lessons from the past . He does not hesitate in saying that the decision of nationalisation of bank was wrong. I like to add here that the government in the year 1991 was also in the same impression that the act of nationalisation was wrong and this is why the then Congress Government under the leadership of P V Narsimha Rao , the then Prime Minister of India initiated the process of liberalisation and privatisation of banks and gave all possible freedom to banks in slow and gradual manner which in their view were inevitable to cure the sickness of bank.

But the hard truth is that banks were nationalised to free the poor from clutches of money lenders .Bank became sick not because they extended banking and lending to poor but because of misuse of banks for political advantages by the then governments. Bank became weak because of maladministration of human workforce and introduction of bribery and flattery in all levels of banking as also in administrative, legal, political set up of the country. Bank became weak due to Loan Mela culture and waiver of loan culture imposed on bank .Bank became weak not because of lending to poor but using the bank's fund for earning bribe and getting quicker promotions by achieving unachievable targets in shortest period of time. Banks became weak because banks were forced to achieve imposed targets and write off the loan when borrower defaulted in repayment. This resulted in a bad culture . Those who repaid loan in time felt cheated and those who did not repay the dues of banks were awarded.

During the period of so called liberalisation, privatisation and globalisation since 1991 till date, various governments came to power , but the mindset of politicians did not change and neither the quality of bank employees could change due to polluted culture inculcated by politicians in bankers , borrowers and officials working in administration, judiciary and all regulating agencies including CBI and CVC. As such quality of lending did not improve, quality of workforce and politicians did not change. Hence rise in bad debts continued unabated.

Banks (which were used by politicians for lending to poor before 1991 to strengthen vote bank ) after 1991 started to be exploited by politicians not only for enlarging vote bank but also for improving financial powers of political parties so that ruling party could ensure their victory in future elections, Government under the leadership of Mr. Chidambram or Mr. Pranab da , the then Finance Ministers used banks for financing hundreds and thousands of crores of rupees to big corporate houses of their choices . They built pressure on banks for writing off of voluminous loans of defaulters which included business houses which helped parties in election. Such exploitation from top level induced top officials of banks to use bank to help their kith and kin , their close friends and to lend money to those business houses which extended huge illegal money either in cash or in kind to bank officials if they sanctioned loans without much scrutiny of capacity of loan seekers.

Till 1991 the culture of non-repayment of bank's loans in time was confined to small borrowers covered under various schemes launched by Government. But after 1991 , this bad culture on not repaying banks dues extended to mid-segment and big borrowers too slowly and gradually. It has become now the habits of majority of borrowers to avail loans from various banks and then not to repay with a target to turn their account as Non Performing Assets so that they may take advantage of various write off scheme or compromise schemes launched by banks under pressure of the government. Bank officers also think it wise and safe to finance liberally to achieve the imposed target , earn bribe and then write off the bad loans , which also to earn bribe.

Now the million dollar question is whether banks can sustain such large and continuous loss of money in bad debts and in write offs. There is limit for everything. Year after year banks are sacrificing huge money in writing off loans and in compromise settlement with defaulting borrowers. Load of bad debts is rising every quarters. Banks have learnt how to hide bad debts by using various tools of rephrase, restructure or evergreening of loans. Bank officials who do not hide bad loans are taken to task and those who are master in manipulations are awarded.

Not only this , even government does not want banks to disclose all bad debts in one go because it will expose politicians who misused and mismanaged banks .They do not want to close the source which help them in gaining political and financial powers. When banks face capital crisis , Government infuse capital to save them from exposure. After all , it is not the private property of politicians which is lost but it is is public money which is ultimately lost and it is public who have to bear the burden of taxes. But the question is how loan this huge loss of public money will continue and how long Government will help banks.

It is important to point out here that the same government stopped subsidy on fuel like petrol, diesel or LPG in phased manner only because it could not sustain the increasing load on subsidy on public exchequer. Government justify the stopping or curtailing of fuel or fertiliser subsidy saying that it hampers growth and it leads to pilferage of subsidy . They says that the amount of such subsidy is largely taken away by middlemen, babus, officers and upper class .

Why the same government do. not understand that major chunk of loan which is now stressed is in the hands of rich borrowers. It is undeniably true that it is hardly five percent of total stressed assets which belong to poor class of society .Ninety percent of total incremental exposure of banks during last two decades went to big business houses and more than ninety percent of total loss caused to banks by write off of loans or due to compromise settlement were in favour of upper class and big borrowers only . Poor class of people continue to be exploited by local money lenders as they used to be exploited before nationalisation of banks or after adopting the policy of so called reformation and policy of liberalisation, privatisation and globalisation.

I therefore do not agree that the decision of nationalisation of bank was wrong . Neither do I feel that the decision of extending more and more freedom to management of public sector banks after 1991 in the name of reformation was wrong. The root cause of sickness does not lie in policy making .

All policies are framed with right intention and good motives. Problem arises at the level of execution of policies and plans framed. Misuse of banks for political purpose has become a regular phenomenon . Though all prominent and talented bankers who are well wishers of banks from time to time warn government of growing sickness and alert about possible consequences in long run.

Several committees have been set up in the past to explore ways to safeguard banks from disaster and problem of bad debts have been the discussed for last four decades but no real step has been taken to curb the growing corruption and to stop bad culture flowing from top ranked ministers and officials. No effective step has been taken to stop flattery and bribery based promotion and transfers of manpower .No step has been taken to stop favouritism and ill-motivated interview in recruitment of manpower.

It is only in banks that an officer get four promotion in one decade whereas many do not get even one promotion in four decades. This bad culture has resulted in negative motivation. Bank officials are now loyal not to bank but to bosses under whom they work. Similarly politicians are least bothered of health of banks , they are more concerned about their political future . Officers working in RBI, CBI, CVC, Judiciary and other concerned departments are more loyal to their political masters than compliance of rules and policies.

It is ironical that top officials of RBI appears helpless in containing menace of rising bad debts in banks. It may be due to political compulsions. It is also true that RBI did not perform its duty of carrying out proper and periodical inspections to nip in the bud. RBI deputy Governor Mr. S. S. Mundra on 11th of August 2015 told in a conference that bank's loan exposure to stressed steel sector is worrisome.

Now even Reserve bank of India has understood that problem of Non Performing Assets in Public Sector banks in particular and banks in general is much larger than what it is perceived and reflected in balance sheets of banks. Volume of aggregate NPA of banks shown through Balance Sheet is roughly around 5 percent of total assets only. Volume of stressed assets is around 10 percent. But actual volume of stressed assets including hidden stressed assets is not less than 25% and it may even go beyond 50% if Banks honestly stick to prudential guidelines issued by RBI in this regard.

Previous government also expressed worries on health of public sector banks on many occasion but took no substantial , effective and real step to reduce NPA . Rather they continued to add fuel to fire by forcing bank to lend without caring for health of their assets. They were more concerned about their political career than health of banks. Mr. Narendra Modi Prime Minister of India and Mr. Arun Jaitley Finance Minister of India have expressed concern on rising bad debts several times. Various Deputy Governors and Governors of RBI too expressed concerned about sickness of banks son many occasions during last two decades but did nothing to cure it either due to political pressure or in fear of exposure of banks or due to pressure from corporate houses. All peached sermons to banks to take care of assets but in fact all their actions were directed to affect adversely on continuously deteriorating health of banks and this is why Gross NPA and Stressed assets in bank continue to rise every quarter .

Lending to poor and backward section of the society is unavoidable because India is a poor and social welfare state . Lending to big corporate is necessary to achieve growth .Lending becomes dangerous if recovery of money from defaulters become difficult and dependent on wishes of politicians or on inefficient and corrupt administrative and legal machineries. Loan is life if used for purpose loan is granted and repaid as per schedule .Loan is really growth oriented if it is used honestly for growth and for creation of assets. But if loan is sanctioned to please politicians and not repaid by borrowers , it affects the health of lender. One is slow poison and another is deep poison if lending takes place only to please politicians and only based on bribery , flattery and to boost up credit figures in balance sheet, health of assets has to become miserable .

In an interview with CNBC TV18 during first week of August 2015 ,Mr. Narayan Vaghul Former Chairman of ICICI bank says that the problem of bad loans in banking industry is much bigger than what is disclosed and the government needs to act urgently. he further adds that the government should learn lessons from the past . He does not hesitate in saying the decision of nationalisation of bank was wrong. I like to add here that the government in the year 1991 was also in the same impression that the act of nationalisation was wrong and this is why the then Congress Government under the leadership of P V Narsimha Rao , the then Prime Minister of India initiated the process of liberalisation and privatisation of banks and gave all possible freedom to banks in slow and gradual manner which in their view was inevitable to cure the sickness of bank.

But the hard truth is that banks were nationalised to free the poor from clutches of money lenders .Bank became sick not because they extended banking and lending to poor but because of misuse of banks for political advantages by the then governments. Bank became weak because of maladministration of human workforce and introduction of bribery and flattery in all levels of banking as also in administrative, legal, political set up of the country. Bank became weak due to Loan Mela culture and waiver of loan culture imposed on bank .Bank became weak not because of lending to poor but using the bank's fund for earning bribe and getting quicker promotions by achieving unachievable targets in shortest period of time. Banks became weak because banks were forced to achieve imposed targets and write off the loan when borrower defaulted in repayment. This resulted in a bad culture . Those who repaid in time felt cheated and those who did not repay the dues of banks were awarded.

During the period of so called liberalisation, privatisation and globalisation since 1991 till date, various governments came to power , but the mindset of politicians did not change and neither the quality of bank employees could change due to polluted culture inculcated by politicians in bankers , borrowers and officials working in administration, judiciary and all regulating agencies including CBI and CVC.

Banks (which were used by politicians for lending to poor before 1991 to strengthen vote bank ) after 1991 started to be exploited by politicians not only for enlarging vote bank but also for improving financial powers of political parties so that ruling party could ensure their victory in future elections, Government under the leadership of Mr. Chidambram or Mr. Pranab da , the then Finance Ministers used banks for financing hundreds and thousands of crores of rupees to big corporate houses of their choices . They built pressure on banks for writing off of voluminous loans of defaulters which included business houses which helped parties in election. Such exploitation from top level induced top officials of banks to use bank to help their kith and kin , their close friends and to lend money to those business houses which extended huge illegal money either in cash or in kind to bank officials if they sanctioned loans without much scrutiny of capacity of loan seekers.

Till 1991 the culture of non-repayment of bank's loans in time was confined to small borrowers covered under various schemes launched by Government. But after 1991 , this bad culture on not repaying banks dues extended to mid-segment and big borrowers too slowly and gradually. It has become now the habits of majority of borrowers to avail loans from various banks and then not to repay with a target to turn their account as Non Performing Assets so that they may take advantage of various write off scheme or compromise schemes launched by banks under pressure of the government. Bank officers also think it wise and safe to finance liberally to achieve the imposed target , earn bribe and then write off the bad loans , which also to earn bribe.

Now the million dollar question is whether banks can sustain such large and continuous loss of money in bad debts and in write offs. There is limit for everything. Year after year banks are sacrificing huge money in writing off loans and in compromise settlement with defaulting borrowers. Load of bad debts is rising every quarters. Banks have learnt how to hide bad debts by using various tools of rephrase, restructure or evergreening of loans. Bank officials who do not hide bad loans are taken to task and those who are master in manipulations are awarded.

Not only this , even government does not want banks to disclose all bad debts in one go because it will expose politicians who misused and mismanaged banks .They do not want to close the source which help them in gaining political and financial powers. When banks face capital crisis , Government infuse capital to save them from exposure. After all , it is not the private property of politicians which is lost but it is is public money which is ultimately lost and it is public who have to bear the burden of taxes. But the question is how loan this huge loss of public money will continue and how long Government will help banks.

It is important to point out here that the same government stopped subsidy on fuel like petrol, diesel or LPG in phased manner only because it could not sustain the increasing load on subsidy on public exchequer. Government justify the stopping or curtailing of fuel or fertiliser subsidy saying that it hampers growth and it leads to pilferage of subsidy . They says that the amount of such subsidy is largely taken away by middlemen, babus, officers and upper class .

Why the same government do. not understand that major chunk of loan which is now stressed is in the hands of rich borrowers. It is undeniably true that it is hardly five percent of total stressed assets which belong to poor class of society .Ninety percent of total incremental exposure of banks during last two decades went to big business houses and more than ninety percent of total loss caused to banks by write off of loans or due to compromise settlement were in favour of upper class and big borrowers only . Poor class of people continue to be exploited by local money lenders as they used to be exploited before nationalisation of banks or after adopting the policy of so called reformation and policy of liberalisation, privatisation and globalisation.

I therefore do not agree that the decision of nationalisation of bank was wrong . Neither do I feel that the decision of extending more and more freedom to management of public sector banks after 1991 in the name of reformation was wrong. The root cause of sickness does not lie in policy making .

All policies are framed with right intention and good motives. Problem arises at the level of execution of policies and plans framed. Misuse of banks for political purpose has become a regular phenomenon . Though all prominent and talented bankers who are well wishers of banks from time to time warn government of growing sickness and alert about possible consequences in long run.

Several committees have been set up in the past to explore ways to safeguard banks from disaster and problem of bad debts have been the discussed for last four decades but no real step has been taken to curb the growing corruption and to stop bad culture flowing from top ranked ministers and officials. No effective step has been taken to stop flattery and bribery based promotion and transfers of manpower .No step has been taken to stop favouritism and ill-motivated interview in recruitment of manpower.

It is only in banks that an officer get four promotion in one decade whereas many do not get even one promotion in four decades. This bad culture has resulted in negative motivation. Bank officials are now loyal not to bank but to bosses under whom they work. Similarly politicians are least bothered of health of banks , they are more concerned about their political future . Officers working in RBI, CBI, CVC, Judiciary and other concerned departments are more loyal to their political masters than compliance of rules and policies.

It is ironical that top officials of RBI appears helpless in containing menace of rising bad debts in banks. It may be due to political compulsions. It is also true that RBI did not perform its duty of carrying out proper and periodical inspections to nip in the bud. RBI deputy Governor Mr. S. S. Mundra on 11th of August 2015 told in a conference that bank's loan exposure to stressed steel sector is worrisome.

Banks’ total exposure to the steel sector stands at ₹3-lakh crore while net sales of the companies within the sector also stands at around ₹3-lakh crore with an EBIDTA (earnings before interest, depreciation, taxes and amortisation) of ₹37,000 crore, said Mundra at the ICAI International Conference at Indore.

Pointing out that the level of stressed assets in the sector exceeds 27 per cent, the Deputy Governor said large capacities are lying idle as global/domestic demand conditions have weakened. "Further the capacity expansion has been done using excessive leverage. These pointers definitely raise concerns," the Deputy Governor said, and added that excessive leverage by the borrowing corporates is not limited to the steel sector alone. The Global Financial Stability Report, released by IMF recently, has noted that 36.9 per cent of India’s total debt is at risk, which is among the highest in the emerging economies, while India’s banks have only 7.9 per cent loss-absorbing buffer, which is among the lowest, Mundra explained.

It is not only steel sector which is stressed, position of agricultural loan, textile loans, loans to jewellery sector, loan to real estate sector, education loan to students etc are all facing the same situation. RBI officials and politicians think it safe to blame global recession for deteriorating health of bank knowing very well that private banks under the same economic and social conditions are performing well compared to PSBs.

It is seen in the past when Finance Secretary like D. K. Mittal tried his best to improve bank's health , he was criticised by top politicians. . And as soon as Mr. Chidambaram took the charge of FM , he removed him from his post . This happens with all officials inside or outside bank who try to focus on good lending and who try to punish bad officials. We have seen How senior and honest IAS officers like Mr. Ashok Khemka in Harayana State was and is being treated by Government of the state.

Rather it is established culture in banks as well in political circle to award those who blindly follow the right or wrong advices of to officials and punish those who try to expose misdeeds of top officials. This culture has created a culture and an environment which is conducive for growth and promotion of bad performers at all levels. Even directors appointed for Boards of Directors are those officers and politicians who are number one flatterers and bribe earners.

Unless and until culture of flattery and bribery is changed and stopped fully, one cannot imagine of any improvement in health of public banks. Willingly or unwillingly, Government has to learn punishing officers and politicians who caused loss to bank due to their ill-motivated decisions in lending or in recruitment of staff or in promotion processes taking place in banks . They will have to give full powers to auditors and inspectors so that they have courage to write truth of all bad accounts and bad officers without fear of any repercussions in their career or personal life due to torturous transfers.

Government will have to provide enough manpower and infrastructure to auditors, inspectors, police officials, judges , magistrates, Debt Recovery Tribunals , courts so that they may act timely and honestly. There should not be any delay in punishing bad officials and bad politicians whosoever he or she may be. An environment has to be created in which honest officer can work without any fear of action for their good work.

Practice of transferring an officer to take revenge or for not serving personally to bosses has to be stopped. System of Interview which gives ample opportunity to members of Interview board to select or reject any officer as per their whims and fancies in promotion processes has to be dispensed with. Clear message should go in the minds of each employee that if he or she cause loss to bank and in turn to Nation will be taken to task. Only then we can dream of good health of not only bank but all public sector undertakings.

Government will have to stop using banks for political purpose. They will have to stop asking banks to earn through non-banking activities like insurance , mutual fund or stock market. Let bankers focus on banking activities only. Banks can earn a few crore in form of commission by selling insurance policies , but during the course of this activities, they ignore taking care of valuable assets worth crore and crores of rupees and thus cause loss to bank to the tune of hundreds and thousands of crores of rupees. There is a proverb in Hindi which says "Gau marker Juta Dan" which translate into English as "Penny Wise Pound Foolish".

Due to wrong execution of good policies of the government, mismanagement of manpower, corruption at all levels and inefficient system at all level, health of bank is moving from bad to worse. It is really worrisome. Problem of bad debts in banks is undoubtedly bigger and deep rooted. I doubt whether the government is really serious to deal with it .

Government will have to stop window dressing in banks. Bankers are increasing their balance sheet size by window dressing. Lacs of crore or rupees are added in deposits and advances in last few days of each annual or half yearly or quarterly closing. This results in promotion to wrong and bad officials and rejection of good performers. Bankers conceal bad debts by showing artificial recovery or by restructure of bad advance accounts. This window dressing helps some officers to go up the ladder whereas it become curse for some others in career. This bad culture is known to RBI, Finance Ministers and all auditors , but none has courage to pinpoint it and punish to culprit . Window dressing depicts a false picture of bank and helps defaulters in disposing off the bank's assets for their personal advantage .