Dhanalaxmi Bank to remain Strong

Dhanalaxmi Bank,one of the oldest private sector Banks from Kerala has been in the news for quite some time unfortunetely not for good reasons. The bank underwent some drastic changes under the earlier CMD Mr Chaturvedi and it lost its grip on its traditional and conservative banking. Historically, the bank has some Union Issues which got aggravated with the massive induction of outsiders at a exorbitanly high salaries under Mr Chaturvedi's regime. Besides, the composition of assets and liabilities which had some semblance pf order and were manageagle had undergone sea changes with Whole sale deposits and whole sale lending replacing the retail deposits and retail borrowers causing hardships in terms of high costs and poor recoveries. With the exit of Mr Chaturvedi, some of the top Executives have left the organisation and with them the advances have become NPAs and the deposits have also disappeared. It will definitely take some time for the new Management to adjust the business composition both with HumanResources and Assets and liabilities.
The bank is traditionally strong with a large clientele and It has all the strengths to run on viable lines.It only requires good guidance from the RBI and support for some time to stabilise its recently changed management set up and bring back its own way of functioning with its traditional approach combined with the modern way of banking. The bank is strong and it has all ingredients to remain strong and grow strong.

Dr.T.V.Gopalakrishnan

( This comment appeared in The MInt dated 23/11/12)

The Cost of NPAs are borne by innocent stakeholders

The staggering NPAs of banks are nothing but a different kind of loot of public money mostly by corporates and other borrowers. More the NPAs mean more loss of taxes, depositors and other stakeholders money and there is no justification in finally writing off the losses. The business of banking is based on public money and business should be run on professional and commercial lines. Borrowers cannot expect to run their business using depositors' money ruthlessly and without adhering to the discipline expected of them. Economic Slow down may be a cause for business failures but the failures cannot be fully accounted for by business failures. Bankers also have to be blamed for recklessly lending throwing to winds basic principles of lending. The only way to prevent formation of NPAs and discipline the bad borrowers is to have a rating introduced for them based on their performance and conduct of accounts and levy a small penalty for deterioration in rating. This way borrowers will be disciplined and banks will have funds collected from bad borrowers to cover up the NPAs over a period. Other stake holders will definitely welcome such a move.

Dr.T.V.Gopalakrishnan

( This comment appeared in ET dated 23/11/12).

A Sandy Solution for Bihar's Coffers

Dr.T.V.Gopalakrishnan says

The author's suggestion is excellent and makes sense in tackling the sand shortage experienced in various states and the law and order problem caused by land Mafia. The solution offered also benefits Bihar in many ways by enabling it to augment its revenues and finding adequate resources to take care of its other pressing needs. The economy needs integration of policies which benefit the various states in different ways. Labour shortage is felt in most of the southern states and the north easter states can make use of their surplus labourers by sending them to south with proper coordination with various state authorities. This way sharing of surpluses mutually among the states will find solution to many of the problems faced by various states and the benefit is for the entire economy, society and the nation. The author deserves special kudos to have come out with a good suggestion. Will someone look into this?

( This comment appeared in Times of India dated 18/11/12 in response to an article A sandy solution for Nitish's Coffers)

Provide at least some toilets for common masses

Dr.T.V.Gopalakrishna (Mumbai)says:

November 18,2012 at 11:54 AM IST

The author deserves all kudos for having come out with a suggestion to have a Latrine Policy for the nation.Mr Jairam Ramesh was right when he made an observation we require more Toilets than temples.It is really a shame that such topics come to the fore for discussion openly as the nation has miserably failed to provide the basic facilities to its people after 65 years of ruling by Indians after independence. Bangalore the city known as California for its IT revolution and having Internationally well known Technocrats and billionnaires is still not having adequate toilets for its labour force and many of the less fortunate people. It is a common sight in the morning hours to see people with mobile on one hand and a bottle of water on the other hand moving to open places left for development of Gardens and community centres for their toilet needs. One wonders after 65 years of independence and having earned the status of fast growing economy and having the potential to attain the super economic power of the world , how the very basic needs are not met. The econoomy is looted left and right but the looters can spend part of the money to provide common toilets which will be well appreciated. and loot will be to some extent justified and tolerated.

This comment appeared in Times of India dt18/11/12 in response to an Article India needs a Latrine Policy in Times of India.

Abolition of CRR and RBI Balance Sheet

The article carries the strong defence in favour of not paying intereston CRR balances.SBI's Chairman's observation that CRR is a waste on the economy is something very strange and it only indicates that he cares more about SBI's balance sheet than the Economy's balancesheet which broadly reflects on RBI's balance sheet.The author has explained very well the importance of CRR as a monetary control tool and the need for the Govt to restrain on its fiscal flamboyancy.Strong RBI balance sheet is only a reflection of the weakness of the economy and this needs to be appreciated both by the Govt and the banking system.No doubt the economy should grow and that is the common objective of the Govt, RBI and the banking system.But to ensure growth,the economy needs a strong financial system and sound fiscal policies and RBI as a responsible Central Bank of the country has a role to play taking the interests of the economy and its people.Inflation if brought under control,it will benefit all.

from: Dr.T.V.Gopalakrishnan

Posted on: Nov 16, 2012 at 09:32 IST

 (This comment published in BusinessLine is in response to an article Not the Right Time to abolosh CRR appeared in B/Ldt 16/11/12.)

The need to regulate Domestic Work

Comments:

The article reads well and has highlighted the need to recognise the domestic workers importance and bring them under proper legislation and regulation.Sincethe liberalisation of the economy in the 1990s and with the invasion of Information Technology, there is a boom in the construction activities and related services,auto industries and things like that. This has resulted in the migration of labourers from the rural areas to urban and metro politan centres.The demand for domestic servants has increased manifold and their wages have taken a steep hike whether recognised or not officially.Of course they are not formally organised,but in metro centres like Bangalore,Mumbai etc,they are informally organised for good though the exploitation continues unchecked or noticed.As rightly said,the womenfolk form the majority of the domestic help but it has some negative social implications as many of their men folk remain unemployed and resort to a life socially undesirable and needs Govt's care

from: Dr.T.V.Gopalakrishnan

Posted on: Nov 16, 2012 at 10:41 IST

This appeared in Business Line dt16/11/12 in response to an article  Changing Patterns of Domestic Work in Busiess Line dated 12/11/12)

Asset Liabilities

This refers to the edit “Worsening asset quality” (November 12). The deterioration in the quality of assets may be partly due to the downtrend in the economy, but the same cannot be taken as a matter of consolation for banks and stakeholders of banks. The seeds of non-performing assets (NPAs) are sown during the boom period when banks expand credit, throwing caution to the winds all appraisal standards. Borrowers take full advantage of this liberalised approach of the banks. The only way to curb formation of NPAs in banks is to discipline the borrowers by strict appraisal standards and close monitoring of loan accounts. They need to be rated based on their conduct of loan accounts. Banks should levy a small fine when their performance deteriorates. As it is, the cost of maintaining bad accounts in banks’ books is debited to the profit and loss account, which is at the cost of depositors’ interest and other stakeholders’ share of dividend.

T.V.Gopalakrishnan.
( This letter in response to an Editorial Worsening Asset quality in Business Standard dt 12/11/12 appeared in BS dated 14/11/12).

Computerisation of DRTs at whose Cost?

The move to computerise DRT's operations is good but will it help to improve the recoveries of loans is doubtful. As it is,the expenditure incurred to maintain the bad debts in banks books and recover the dues throgh various means is very high and is by and large borne by the stake holders of banks and by the society through tax.It is time a serious study is made on the over all cost incurred by banks and by the Govt due to the borrowers indiscipline and banks'lackadaisical approach in disciplining and educating the borrowers to conduct the loan accouns satisfactorily as the money enjoyed by them belong to general public and they have no right to misutilise them.Genuine business failures are understandable but bad debts arising out of such failures are very few and far between.It is time the cost of bad debts is passed on to the borrowers by banks by rating them and levying a small penalty based on their performance.The other stakeholders of banks should take up the issue with RBI&Govt

 

 

  Dr.T.V.Gopalakrishnan

(This comment got published in response to an article FM considers Computerisation of DRTs to improve Recoveries appeared in Business Lines dated 14/11/12) 

RBI and Rural credit

The priority sector is the most neglected sector is the ground reality if one were to go by the contribution of agriculture to the GDP which has been falling year after year.This is one area which enjoys lot of discussion and is always talked about but the fact remains that after the setting up of NABARD,niether theRBI nor theNABARD has given undivided attention to the development of the rural sector which include agriculture, micro enterprises and all rural linked activities.Financial Inclusion is way behind the target.The role of RBI in developing the rural segment needs to be reexamined in the context of an exclusive set up available in NABARD for this purpose. The times have changed and the rural scenario has also changed after the reforms since 1991 and it is high time a total review of the rural segment and the financial system is undertaken to clearly define the role of NABARD, RRBs,Cooperative banks, Micro  Finance  money lenders,etc.. EARLIER THE RBI is relieved the better. The Central Bank should worry about the growth of the economy and controlling inflation keeping the financial system in tact. Development of agriculture and rural sector should be made the exclusive prerogative oF NABARD. RBI should only be overseeing the progress.

 

  Dr.T.V.Gopalakrishnan

 

( This comment appeared in Business line dated 9/11/12 in response to an Article on  Redefine Priority Sector Lending)

FM's Meeting PSU Banks

 

The FM's meeting PSU banks on the 15th of November 2012 to take stock of things at this juncture when the economy needs solid support from them is welcome. The FM should exhort bankers on the following items which will give a boost to the economy.1)They have to reduce the interest rate for the manufacturing sector by suitably adjusting their present NIM which is very high compared to International standards. The banks cannot expect to make huge profit at the cost of the economy.2) The Savings bank interest rate though deregulated has been kept unchanged at 4% which is nothing compared to the inflation rate prevailing at  double digits. 3) NPAs need to be tackled by being very strict with borrowers and this can be achieved only through rating of the borrowers and levying a small penalty based on their conduct of accounts. This levy over a period will be sufficient to cover the NPAs and the provisions towards NPAs which is at the cost of all other stake holders particularly the Govt and depositors can be minimised. The loss on account of NPAs needs to be assessed by each bank and this needs to be monitored by RBI and FM jointly. The write offs should be subjected to checks and balanced and this needs to be critically evaluated.  4) The cash deposit ratio needs to be considerably brought down to improve profitability.5)

 ALM needs to be intensified to bring down cost and maximise profit.6) The establishment cost  needs a close watch and wasteful expenditures  to be meticulously avoided. The IT should be put into optimum use to avoid wasteful expenditures on travels  seminars and conferences. 7) Financial inclusion should be viewed as a business opportunity and to make it a success it is better for banks to seek the assistance of social workers and other agencies engaged in different activities in towns and villages. The approach that only those sitting in HOs know everything has to be shelved and they should come down to ground level realities.

The FM should review the  customer service  and a  Ratio to assess  Customer Service   akin to CRAR should be attempted.

RBI's emphasis on inflation control cannot be faulted

RBI's emphasis on inflation control cannot be faulted


The cost of inputs has increased manifold and this is what the RBI is concerned about. Inflation has not only affected the masses but also investors, and producers of goods/services.

November 4, 2012:

Kudos to the Reserve Bank of India Governor D. Subbarao for keeping the key rates unchanged in its second quarter monetary policy despite pressure from the Government and the market.

The Governor’s concern about persistent inflation and inflationary expectations compelled him not to resort to a rate cut, which the Government had wanted.

Though the Finance Minister P. Chidambaram came out with a blueprint to bring down the fiscal deficit from the present 5.8 per cent to 3 per cent by 2016-17, the RBI perhaps was not fully convinced whether it can be achieved, going by past trends and uncertainties on various counts.

High deficits

The fiscal and current account deficits continue to remain high, and the measures for reducing the fiscal deficit by increasing fuel prices and attracting FDI will take time to fructify. And these may not be sufficient to enhance the revenues of the Government and attract investments.

Further, the measures are also not adequate enough to boost growth, particularly industrial, which is dependent on several other factors, such as availability of land, power, ease of doing business, dependable taxation and labour policies, and so on.

Economic growth has been hit due to several other factors, such as high and persistent inflation, prevalence of corruption, black money, political uncertainties, lack of administrative measures and delays in decision-making by bureaucrats. The RBI’s approach has apparently irked the Finance Minister and his immediate reaction was expressing disappointment by saying that “if the Government has to walk alone to face the challenge of growth then we will walk alone.”

This sounds as if RBI is against growth and not supportive of Government’s initiatives in this regard.

The objectives of the monetary policy have always been and continue to be economic growth and price stability, and the Finance Minister cannot forget the fact that RBI has been doing its best to enhance credit to the agriculture, manufacturing and retail segments.

The Cash Reserve Ratio (CRR) has been eased to enable banks have more funds at a lower cost so that they can lend at cheaper rates. The current interest rates are not too high, but industrialists are clamouring for more reduction.

The cost of inputs, in general, has increased manifold due to the overall rise in prices and this is what the RBI is concerned about.

That inflation has not only affected the masses but also investors and producers of goods/services is a fact which the Government needs to ponder and address.

Bring inflation under control, then the confidence in the economy will improve bringing along with it the much-needed investment and growth is perhaps the message the RBI Governor has intended through this review.

Different path

Unfortunately, the RBI and the Government have been, intentionally or unintentionally, moving in different directions, though the goal is the same — economic growth with stability.

Savings have dwindled, the investment priorities have changed (from production to speculation) and everybody wants to make quick money exploiting the situation. Ethics and a value-based approach to investment and production seem to be fast disappearing.

The political climate and lack of confidence in the economy are keeping away prospective investors. Governance, which is the foundation for any economy to ensure sustainable growth and equitable distribution of wealth, needs to be strengthened. There needs to be total coordination between the Government and the Reserve Bank.

The remarks of a senior banker that higher provisioning will dent banks’ profit is uncalled for taking into account the huge accumulation of bad debts in banks’ books.

Indiscipline among the borrowers has been basically due to banks extending undue favours to ineligible borrowers and their failure in sanctioning loans without adhering to sound principles of lending.

Some of the bad debts may be due to the slowdown of the economy but the tendency of bankers to expand credit ignoring sound principles of lending needs to be curbed.

The regulator cannot be expected to be a silent spectator to the deteriorating quality of banks’ assets. The loss on account of staggering NPAs is being subsidised by all stakeholders, which include the Government, the taxpayers, the depositors and owners. And this cannot go on.

The banking system that is sound and stable needs to come to the rescue of the economy by respecting the regulatory requirements and, at the same time, playing its role in a professional manner without yielding to the temptation of making easy profits.

High margins

The net interest margin of banks in India remains high compared to international standards and they should, therefore, be in a position to bring down lending rates through efficient management of their assets and liabilities.

As the RBI Governor rightly put it, only in a regime of low and stable inflation can consumers and investors make informed decision.

Growth is a function of good investment for which the environment should be conducive and this calls for appropriate steps from the Government.

(The author is a Mumbai-based consultant. The views are personal.)

Keywords: RBI, Monetary Policy, Interest rate cut, Inflation, persistent inflation and inflationary expectations, rate cut

 

This article got published in THE HINDU BUSINESSLINE dated 5/11/12,

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