RBI And Government Of India

The Reserve Bank of India (RBI) on Thursday 28th August 2015 warned the Government that any delay in reform of the banking system in the country would lead to greater risk in the economy. “The current stress in the banking system suggests that the real economy will not wait for the banking system, and a slow pace of reform could lead to greater, rather than lower risk residing in the banking system,” wrote RBI Governor Raghuram Rajan in his overview of the central bank’s annual report 2014-15.

I am unable to understand for how long Government and RBI will make lame excuses for growing sickness in banking system and simply blame the 'system' or 'so called delay in Reform Process' or' interest rate' or 'global recession'. After all , it is they who have created system during last four to five decades of  their rule since nationalisation. It is they who have taken several reformative steps for banks since 1991 in the name of privatisation, reformation, liberalisation and globalisation.

It is RBI which gave full freedom to banks on Interest rate structure. It is Government which forces banks to reduce Interest rate on various agriculture loans or educational loans or export loans. Further it is they who can apply Uniform Interest Rate regime if they like to curtail and reduce loss caused to banking system due to unhealthy and unwarranted competition among sister banks in setting framework and structure for interest rates. I have advocated uniform interest regime since long through my letters and blogs. But it is policy of reformation which stops RBI in snatching freedom of banks.

RBI want stability in interest rate and sticking to base rate whereas  GOI want concession for various sectors of loans. Why do they blame each other on interest rate, I do not know.

If they like they can fix interest rate for various sectors as per national priorities instead of blaming each other .
If they like they can stop unhealthy practice of various banks offering interest concession to take over a loan from other bank.
If only reduction in interest rate can help banks in coming out of sickness or help banks in achieving credit growth or can help the country in GDP growth , RBI and GOI are empowered to impose their rate structure on banks .
After all freedom to bank is not much significant as it is growth of the country and safety of banks.
It is they who have been claiming since log that Indian banking system is performing well despite crisis in USA or elsewhere or despite economic recession in the country.

While talking on financial sector, Dr. Rajan said that “we need to increase efficiency through greater entry and competition.” I am unable to understand what type of competition he means to advocate for PSBs. Public sector banks are already competing with each other and causing loss in the name of credit growth. They are in competition with new generation private banks since 1991 and they are to face the same with newly branded Payment banks.

Competition could not increase efficiency of PSBs even after all freedom they have been  enjoying since 1991 in the name of reformation. What further reformation RBI mean to further add to banking system?

It is crystal clear to me and many bankers that unwarranted competition only cannot improve the efficiency of bank officers until there is drastic change in the attitude of top officials and top politicians of the country who give  less value to merit in practice but more value to flattery and bribery like values of workforce.

It is ill-motivated management of top bank officials , RBI officials and politicians which have created, irrigated and promoted  a culture of flattery and which promotes torturous transfers to good performers and rejection of good officers in promotion processes. It is absolute untrue, incorrect  and wrong to say that there is shortage of talented manpower in banks or that in middle management or higher management. There is no shortage of talented staff  in any cadre or in an scale in any bank. Need of the hour is to recognise them . Unless there is change in attitude of top officials and political masters one cannot dream of perfect recognition and respect to merit ,honesty and true performance.



According to Rajan, psu banks are in a disadvantages position also because of skilled manpower. "Because PSBs compete in the same market place for talent as do private sector banks and foreign banks, and may skill gaps are increasing tat the middle management levels because of past hiring freezes, they will be unnecessarily hampered if they are unable to pay appropriate compensation to the middle and senior managers as well as board members," said Rajan.

I would like to say here that only upto eighties banks were giving promotions based on seniority and transferring officers strictly as per potential of the worker .People , top bankers used to give value to experience and seniority. People in all scales were motivated . But when bad debts started increasing in banks due to politics based lending in seventies and eighties , clever and shrewd bank management instead of accepting and telling the truth blamed policy of seniority based promotion .

After 1991 reforms in the country , bank management got full freedom to make their own Merit based promotion policy , recruitment policy and transfer policy. Each bank since then framed merit based promotion policy and for last two decades there is no pressure by trade union leaders to give promotion to seniors. Rather it is trade Union leaders and top officials who jointly decide the name of officers to be promoted or to be transferred to remote and critical places . All the exercises like Annual Appraisal System, Interview Process , Group Discussion which are undertaken in the name of so called merit orintd promotion processes to identify and discover merit are farce , false and to commit fraud with honest workers. Entire process is misused by corrupt top officials and top trade union leaders to give elevation to flatterers and to reject honest workers. Otherwise , there is no such a well proved yardstick or pathological test or psychological test which can detect and discover merit in two minute interview of an officer.

Not only this , corrupt bankers sitting at the top recruited officer in higher scales directly. An officer working in the bank for decades are not promoted from scale I to scale II or scale III or scale IV. But an officer who works in another public sector banks and who has experience of only one two years but who have good rapport with some VIP are picked up for recruitment directly in scale II or III. Further to add fuel to fire, top ranked corrupt officers of PSBs recruited officer directly from colleges and educational CAMPUSES directly in scale II or III in the name of merit. In this way the offered higher salary package to directly recruited officers as compared to officers working in their own banks for decades.

Offices and clerks in the same banks are stagnating without promotions for decades whereas persons of little or no experience are picked up from other banks or educational institutes of choice of top officials or top politicians. It is only after 2013 Supreme Court order that PSBs stopped recruitment from campuses  in middle management  . But the are still recruiting officers from other banks in the name of specialist .RBI Governor is therefore not justified in saying that PSBs are constrained to pick talented guys from markets as their peer banks in private and foreign banks are doings. One cannot believe that heaven has fallen during last two years of ban on campus recruitment for which RBI is insisting and for which PSB management is pleading.



The Reserve Bank of India (RBI) has however rightly criticised the promoters of large companies, saying they take undue advantage of banks’ fear of  NPA “Some large promoters take advantage of bankers’ fears about assets turning non-performing to extract unwarranted concessions, without any sacrifice in the value of their stake,” said RBI in its annual report.

I have been writing in my letters and blogs since long that bank management is busy in hiding bad loans . They are least concerned about real recovery , they want to pass their time somehow or the other . There is mad rush for restructure of bad advances near closing  not always at the request of bad borrowers or as per need of the project but to save some corrupt bankers or to achieve target fixed for bad debts. Culture of fixing target for bad debts or for recovery itself is ridiculous and promotes fraud culture . Officers are taught various methods to hide bad debts on phone .

It is also true that legal system , administrative machinery and political culture also do not support a banker in recovery of loan from bad borrowers but it is also true that the culture of delay in telling spade a spade, that is telling a bad loan as bad causes loss to bank to great extent . 

It is undoubtedly true that  bad bank officers get rid of punitive action if bad loans are concealed by using various tools. But it is also true that promoters of bad projects take advantage of this bad culture in bank of hiding bad loans. I fully agree with RBI Governor in this regard. 
 
“The judicial process, despite a variety of creditor-friendly Bills like the Sarfaesi Act, further tends to hamper the ability of creditors to collect their just dues from influential promoters,” .
RBI has also been nudging banks for early recognition of NPAs so that provisions can be made accordingly. Regulatory forbearance, where RBI makes it easy for banks to extend and pretend, is not a solution, it added in the report. I fully endorse the views of the Governor on this score.

But I am unable to understand why lacs of cases filed in various local courts of various states by various banks to recover money from small defaulting borrowers are pending for final disposals for years and decades . Local certificates cases are supposed to be decided in 90 days to six months. I am unable to understand why thousands of cases filed in various Debt Recovery Tribunals in various states are pending for years whereas they are supposed to recover the money in six months. I am unable to understand why banks delay in taking action under SARFAECI act against high value borrowers and if they file , why administrative and police system fail to provide support to bankers in taking possession of properties of defaulting borrowers. Why banks have failed to confiscate the properties of giant borrower like Kingfisher for years and years? Why there is so much complication in treating a default as wilful default? 

Why RBI and GOI failed to take proper  , adequate and timely care of problems faced by banks in recovery of dues from defaulting companies . Banks are to face pathetic position in recovery of dues both from small borrowers and big borrowers , either due to emotions attached to the person or due to pressure from higher offices or due to political reasons or save their own colleagues or to give a safe exit to retiring officer of the bank. What action RBI and GOI have taken to cure such malpractices or modify and activate the defunct legal and administrative system ? Both of them preach sermons to bankers from time to time but never bothered to nail the real culprit or to rectify the fallacies of the system.
 
Further  RBI and, even the government had questioned banks asking them to explain their reluctance in cutting base rate. Bankers say the increase in bad loans has been putting pressure on the margins as increasingly the interest-earning assets are slipping into the non-performing class. This has deterred banks from cutting loan rates. I am strong view that reduction in interest rate is not going to help banks in any way , it will simply reduce their capacity to earn profit . Banks are incurring huge loss due to rise in bad debts and actual yield on advances is falling year after year and volume of provisioning and sacrifice in write off and compromise is on rise year after year.
 

I salute Reserve Bank of India governor Raghuram Rajan who has taken on the government for thrusting the Jan Dhan Yojana on public sector banks and has called for compensating the PSU lenders. RBI Governor says
'. "We should recognise that PSBs undertake public interest activities (like the rollout of accounts under the Pradhan Mantri Jan Dhan Yojana) that are not always fully compensated. Government should endeavor to keep the competitive playing field level by fully compensating banks for activities it wants undertaken in the public interest," the governor said in his review.

I would like to add here that various schemes of various government has played great role in polluting the banking culture . Banks are no more interested in safeguarding banks but more interested in developing relation with ministers and important politicians. IF PM or FM of the country verbally or in written order ask banks to open accounts with zero balance, entire team of ban staff of all banks stand focussed on opening of bank accounts only jeopardising the other important tasks .

Bank are meant for getting deposits and then lending to needy . But banks are more engaged in non-banking activities and not getting time to safeguard their assets.

This is why I usually say that bank officers in general work not for the bank but for their  bosses who can make or mar their career. Untimely and quicker promotion to an ineligible officer in supersession to other senior and better officer give rise to bad culture and demotivate good workers. This give rise to flattery and bribery and this very culture is root cause of many sickness in PSBs in particular or in all PSUs in general.

Jaitley is right, bank NPAs are unacceptably high and so an RBI rate cut won't be of much use. The clamour for another rate cut from the Reserve Bank of India (RBI) has strengthened with Finance Minister Arun Jaitley stepping up pressure on governor Raghuram Rajan to cut rates, citing falling inflation. But will a quarter percentage point rate cut prompt banks to cut their rates further?

The answer is certainly no. Cut in repo rate by RBI from time to time may help in easing liquidity of banks to some extent but does not help in reducing cost of fund to a desirable extent. This is why banks are ignoring the signals given by RBI towards interest rate reduction. If RBI still feels that there is scope of rate curtailment and banks are wilfully neglecting advices given by RBI, they should peep into interest cost of one or more bank  and  particularly big banks like SBI , PNB , BOB to ascertain the real cost of fund and to find out whether there is scope for rate cut for them. If any bank is found to be negligent, the CMD of that banks along with top officials my be brought to sever task.

It is futile to give statement in newspaper from time to time and remain silent spectator of indifference of banks in this regard. After all GOI is big owner of PSBs and RBI is duty bound to take all possible step to protect banks and thus protect the interest of depositors, taxpayers and money of investors.FM of all government of all times promised to save banks from disaster and more emphatically after 2008 sub-rime crisis of America. Similarly Governors of RBI  have committed themselves to protect bank form all risks. But sickness of banks is growing day after day and year after year. No sign of improvement is visible to common man or matured bankers. After retirement or when top officials are on the verge of retirement, they tell the truth of banks. We have glaring examples of SBI chairman of last few years.

Whatsoever may be the reason or whoever may be at fault for present pathetic position of banks, sickness of banks is gradually growing .  Government of India has meged more than half of Rural banks with parent banks,  when parent bank become ill, they are merged with bigger bank , but when banks like SBI will fail , what poor government will do.After all if any bank, private or public sink sinks, it is public who are to face the consequences.

In my opinion, interest rate was never a problem for any bank and neither good borrowers are afraid of any rise in interest rates. It is rather a bitter truth that accumulated bad debts of all banks which appear in current balance sheets of all banks are not creation of a year or two but they are accumulated during one or two decades and  long overdue but surfaced in last few years only because banks introduced Core Banking Solution. Majority of bad debts or stressed assets pertain to period when low interest rate was prevalent in banks in the name of reformation.