Banks' IT and Customer service.

IT has not  reduced banks' cost but it  has definitely  removed the Customer Service from banks is an undisputed fact. .Now the Customers are at the mercy of banks and the Technology. The fact remains that human touch and the values of human behaviour, relationships and the understanding of customers are all missing and all are suffering.  Customers who used to have the pleasure of going to banks ,interacting with other customers  and bank officials are avoiding visits to banks if possible and this culture of having some cordial interactions with banks ' officais has been virtually absent. The Staff attached to banks also seldom show any interest to interact with the customers , or give a smile or even to recognise his presence in the bank premises.So goes the Customer Service in Banks. Service depends on the intelligence fed into the machines but as of today one cannot have the feeling that  the intelligence  is available.

Dr T V Gopalakrishnan .  

Employment Survey and Better inclusive Growth.

The employment survey is very essential as many are self employed in lots of ancillary services earning in lakhs in major cities and having apparently no knowledge of the taxation system , or anything about the financial literacy and excluding themselves from the formal banking system. Now in major cities like Bangalore, Mumbai, Chennai, Calcutta , Delhi etc, maid servants are understood to be earning around Rs 15000 to 20000 per month on an average covering about six or seven houses, milk vendors are earning in thousands by way of Commission and service charges, Car washers in major gated Communities are earning in thousands by charging on an average 400 to 500 Rs per month per car washing many cars, and  fruits and vegetable vendors are doing roaring business having their establishments in front of housing complexes with flats and independent houses numbering more than 1000s.. One is very happy to see that people are really industrious and enterprising but they do not seem to be included in Banking and other employment details. They do provide lot of services but seem to be outside the purview of employment details and statistics gathered for the purposes of GDP, employment, provision of subsidies, and augmentation of revenues to the Government..While many get employed and most of them make good money but many suffer for want of proper accommodation, medical facilities, educational support for their children. They are also harassed and exploited  with corrupt practices and extracting money informally with or without the knowledge of authorities. They need better attention, guidance and inclusion in the formal system of banking and financial inclusion. The informal economy needs to be brought under formal economy for the over all development of the economy and better welfare for people at large. Dr T V Gopalakrishnan.

Human Intervention is a must to fix Frauds and NPAs in banks.

The problem in banks lies not in adhering to KYC norms but in Not Understanding the Customer ie UYC. The transactions when done in a concentrated manner confined to some  few accounts which are of recent origin should naturally arise some suspicion in the minds of officials. This does not happen in our scheme of things as mostly these are done using Technology without having any scope for human intervention. Here in lies the problem. There should be some human intervention to track transactions of suspicious nature and this can be done  only through outsourcing some experts having exposure to inspections and scrutiny of accounts in bank branches.. The  problem is that RBI seems to have stopped inspection of major branches particularly branches having huge Forex Business. The scrutiny of accounts on a surprise basis needs to be carried out in major branches by experts in Forex and loan accounts. Both Frauds and NPA problems can be fixed to a great extent by this approach

Dr T V Gopalakrishnan

Make STT an Important administrative tool to Contain Volatility in the market

Develop STT as an important tool to contain volatility in the market, undue speculation, and to augment revenue without any administrative hassles. There can be different rates of STT for purchases and sales and for amounts exceeding certain cut off limits fixed for sales and purchases. Retailers doing transactions for less than a cut off limit can be given even an exemption to encourage retail participation in the market. Over a period, the approach should be to remove the capital gains tax by suitably modifying the STT for revenue loss if any. STT can also be different for Individuals, Institutions, MFs and FIIs. Dr T V Gopalakrishnan (This comment appeared in Business Line dated 23/10/15)

IPOs and Gullible Investors

 Almost all IPOs have trapped fresh investors. Declaration of dividend just before the IPOs is a clear indication that after the IPOs , no dividends would be declared for years to come. If SEBI were to analyse the performance of Companies which have gone for IPOs and raised capital during the last five years or so can easily observe that the Companies have duped the investors and they have not seen the IPO price after listing. IPOs pricing is greedy and aggressive and SEBI does not seem to have any say in the matter.

Dr T V Gopalakrishnan

(This comment is published in BS dated 23/10/15).

Business and Human resources Risks in Banks not easily measurable.

The quantitative measurements some of the risks in banks  is ok to some extent where the Regulation and supervision are meticulously adhered to and banks are allowed to run on professioal lines without any interference from the Government. and the accounts are not allowed to be manipulated in any way. The over all business risks  are not based on any mathematical models and the element of human risk at least in Indian Context has not been brought under any assessment.The business risks thanks to interference of the Government on day to day running of banks, deployment of credit to preferred segments and chosen projects and financial support to the Government  through statutory Liquidity requirements etc gets distorted to a great extent  and are not measurable by best of mathematical formula. Similarly the human risks in running the business are not subjected to any assessment and both the business Risks and human Risks qualitatively affect the business models and are not easily measurable in the absence of any serious thought as in the case of other risks. Since banks deal in money and with human resources and both are very sensitive to handle. the risks measurement approach  presently in vogue cannot be  a foolproof  method to prevent financial weaknesses and failures.  

Dr T V Gopalakrishnan 

Poverty Elimination and Institutions

The article offers lots of food for thought to the poor  and to those who head institutions which are specifically opened with lots of Pomp and Show to eliminate poverty in the Country Some such institutions are Cooperative Banks Regional Rural Banks, NGOs, Local area Banks , with an Apex Institution called National Agriculture and Rural Development Institution set up in 1982 to give a lead. It is high time the Government in power evaluate these Institutions and how far they have done justice to the objectives with which they are all set up.Except perhaps NGOs, other Institutions cannot justify their existence in helping the rural development and elimination of poverty through agricultural advancement.The farmers are committing Suicide and these Institutions merrily survive enjoying the budgetary support and all other Concessions that come to them from different sources in the name of of agriculture and rural development.The role of NABARD definitely calls for a very quick revisit in the matter.The resources wasted on these institutions if given as subsidies and incentives to the rural people and farmers , they would have themselves flourished and the present situation of poverty and poor agricultural production could have been avoided. The role Local Boards of RBI played , also needs to be urgently reviewed as they can definitely contribute to the development of rural and agriculture development with their involvement in guiding, assisting, supporting, and providing the expert advice to the State Governments and the Institutions and coordinating  their activities and bringing to the notice of the Central Government the updates on various issues related to the rural and agricultural development. The Production and supply Constraints faced by the entire Community can be easily addressed if the Local Boards of RBI is activated and given  importance in effectively involving themselves in the development of the all the four regions with a competitive spirit. Any office set up should prove itself worthy of continuing with its performance in terms of qualitative improvement in achieving the objectives with which they are ser up.

Dr T V Gopalakrishnan

(This comment is in response to the write up on Breaking the Bonds of Rural poverty that appeared on the world Food day in the Hindu dated 16/10/2015). 

Frauds in Banks

How bogus firms come into operation? How the banks are able to open several accounts without any suspicion.? Where is the KYC? What is the role of Concurrent auditors? The Bank generally will have an audit committee, Internal Inspection Machinery, statutory Inspection  and the system of submission of various returns to different Controlling offices and the Regulator? How the entire system has failed all these years is a mystery? These are all some questions lingering in the minds of  all stake holders of banks particularly depositors who are very badly hit for want of adequate return on their deposits,  inadequate and unsatisfactory customer service and harassment in the name of KYC to place their deposits in the banks.  The roots of this type of fruad would have gone very deep and  it requires really experts to fix the problem after getting an over all  modus operandi adopted to perpetrate such a major fraud. The indian banking system is becoming fragile of late thanks to laxity in supervision, non professionalism in management, and interference of the Government in its functioning. More skletons may be in the cup board as the branch wise inspection by the Regulator has been drastically cut short for obvious reasons. The Indra Dhanush proposals do not seem to address the internal deficiencies of banks which are killing themselves and all the stake holders of the economy. Banks deal with money and human resources and both are very sensitive to be handled. It requires a unique approach and the authorities have to be equally sensitive to manage both.

Dr T V Gopalakrishnan 

Plug all loopholes and prevent black money Generation.

 The black money bill aimed at bringing back black money slashed abroad has not served the purpose. The declared amunt is a pittance. Still something is better than nothing. 

The generation of black money needs to be totally plugged for which the enforcement authorities have to concentrate on the following areas involving professionals from different fields.One way of obtaining information is to have a channel opened for the people to freely report where they come across black money deals giving some evidences or some trace of it.

The areas where vigilance is required perhaps to prevent black money generation and money laundering are as under.

1) Allowing corporates to float any number of subsidiaries without any valid reason. These subsidiaries enable black money holders to have some avenues of investments and both the holding Companies and subsidiary Companies declare losses routinely without being seriuosly probed by any authorities. SEBI can be really vigilant and alert in preventing such companies.

2) Imports and Exports: Bank of Baroda Ashok nagar branch is a live example as to how Companies are alloweed to open accounts freely without adherence to KYC norms or any other regulatory Prescriptions. This must have been going on in several branches in a camoufalged manner as the branch Inspectins are not carried out by the Regulator these days.Liberalisation of regulation is essential but it should not lead to loot or indiscipline in conducting the affairs. There should be sufficient checks and balances.

3) Real estate : Black money is easy to be stacked in real estate. The unsold flats in various cities is a solid example of the volume of black money held in real estates. RBI policy rate cut cannot have any serious impact on the real estate movements as black money holders and banks which have financed these real estates are not affected by such policy measures.

3) Purchase of farm lands and forming farm clubs in and around major cities have become a fashion these days and both black money and white money flow to these farm clubs without any  regulation as such. Some companires are floated and they purchase parcels of lands from farmers at very cheap rates and sell them as plots at exorbitant rates.  They also form farm clubs  and make the prospective buyers as members of these clubs by default.  They generally do not prepare any accounts or make the transactions transparent and extort money from these members in the name of plots maintenance.  Some banks also help them in different ways. The companies turn dormant after a few years and there does not seem to be any follow up on these companies by any autorities. White money gets converted into black money and banks are also involved. The fact that amounts are paid through banks do not have the meaning that the money is white. Banks deal in black money and no suspicion arises.

4) Purchase of Gold, Jewellery and other highvalue  Commodiies :The dealers invariably insist on black money and they never entertain cheque or card payments. The IT authorities can visit any bullion merchants incognito and experience themselves that without cash no transactions can be carried out.

5) Dealers in furniture, furnishing houses spread over entire country: They always insist on cash and they seldom take cheque or cards. 

The list goes on and if the authorities can really be after them, the finacial system in the country can be very clean and the revenues of the Government can get augmented several times. The informal economy which is large and bigger than the formal economy needs to be fixed and earlier it is done the better.

Dr T V Gopalakrishnan

Depositors lose interest on deposits and to keep deposits in banks.

If some one were to make a study of the Net Interest Margin (NIM) before and after the RBI's policy announcement, it can be conclusively proved that either the NIM would have gone up or would  be maintained at the level obtaining before the policy. All the banks have reduced the deposit rates by 1.25% and 1.5% and the base rate cut has been in the range of 0.5 % and the maximum of 0.75%. As long as the banks are inefficient in dynamically managing their assets and liabilities  in a highly professional manner and their performance is judged by the NIM they manage to exhibit, the transmission of rate cut by the banks will be akin to chasing a mirage. Dr SubbaRao former Governor was harping on this but without any tangible change. The net result would be depositors will lose their interest on deposits and the interest of keeping money with the banks. The borrowers will continue to loot in all forms and the economy and the tax payers will ultimately bear the brunt. Dr T V Gopalakrishnan

Where is the autonomy?

This rfers to the news item Centre’s delay in approving pension updation scheme irks RBI retirees (Business line Oct 8,2015). It is unfortunate that the Periodical updation of pension on par with Central Government employees which was agreed and implemented in terms of an agreement between the Central Government and the RBI in 1990 was arbitrarily withdrawn by means of an oral order without any rhyme or reason and the retirees are made to suffer since 2005 in the fag end of their life. RBI is supposed to be enjoying autonomy but one wonders even for the payment of pension for which it does not depend on the Central government as it has its own funds specifically earmarked, has to get the clearance from the Government. It is not only the question of autonomy but it is  also the question of survival of retirees in these days of high inflation, exorbitant medical expenditures and ever increasing taxes and declining interest rates on deposits that worries and  kills literally the retirees.  The dispute seems to have come out of some ego and definitely not for want of resources or not recognizing the genuine need to update the pension which is universally and generally done to keep up the social security aspects and to maintain the standards of life for the retirees.  Retirees cannot be condemned as they have toiled to keep up and contributed a lot to enhance the image of RBI which enjoys international recognition for its professionalism and competence. This should have been settled amicably between the Central Government and RBI without involving much of publicity.

T R Usha                 

SEBI, Income Tax Dept and the black Money.

Both SEBI and Income TAx Department have to bear the responsibility for allowing generation of black money and they have to jointly initiate  innovative action to fix the problem. The round trip through promisory notes can be easily avoided if SEBI and IT department decide to be vigilant through proper scrutiny of transactions and track them with intelligence inputs using the IT technolgy.

Further, there are mushrooming growth of subsidiary companies under some holding Companies and the intentions behind having huge number of subsidiaries are nothing but to mix up the black money generation with white money and intentionally avoiding  the trace of it through  showing heavy losses. With such subsidiaries , the holding Comany and the subsidiaries fool the investors and the tax department as well and allow the promoters and directors thrive right royally. No one can have a proper track of transactions and the accounting jugglaries these holding and subsidiary Companies resort to are beyond comprehension and  even the best accountancy brains cannot have a track of transactions they mutually undertake. Here again SEBI and Income Tax department can take some joint action to enure that there are genuine needs of such subsidiaries and they are not set up to hoodwink the Investors and Income tax department without any solid contribuition to the economy. The banks financing these companies also need to be involved as the holding companies and the subsidiaries together can play tricks with bank finance and help themselves and the banks to camouflage NPAs. 

With regard to evasion of  Long term capital gains, the only way to fix thiis without hurting any one is to  have a dynamic use of the Share Transactoion Tax  both on the purchase and sale of shares. The levy is made then and there and the Government can do away with the Capital gains tax. STT on purchase and sales can be different and it can also be different based on the period of holding. Administratively it is convenient to augment the revenue and the ethical deficit now felt in avoiding and evading capital gains tax can be avoided comfortably. There are ways to fix all the problems and the authorities have to be prepared from the angle of ease of doing business and augmenting revenues ensuring total compliance to the ethics desired in business. The economy and all the stake holders would be the ultimate beneficairies and the stock market can be healthy in the long run.   

Dr T V Gopalakrishnan

Why not have a ceiling for the number of Subsidiaries a holding company can have?

Black money generation takes place in India in several ways. Some of the black money gets into stock market and some large corporates seem to be facilitating this with or without the knowledgeof SEBI. Many Corporates have huge number of subsidiaries set up and the way they prepare the accounts for themselves and subsidiaries can easily camouflage the mix of white and black money in all these companies dealings. Such large Corporates seldom declare any dividend and only prepare accounts in such a way that optimism is built up and maintained. One will be surprised to observe that one such large Corporate GMR Infrastructure has more than 100 subsidiaries and many of them are running on heavy losses and including the GMR. The investors are in fact taken for a ride by such corporates and what SEBI is doing in respect of such Corporates having unlimited number of subsidiaries is lingering in the minds of investors?  One gets a strong feeling that black money gets into the system through such subsidiaries and the whole balance sheets of the Holding Company and subsidiary Companies get  liberally fudged in such a way that the best brains in accountancy cannot fix any problem what so ever. Satyam computers had also several subsidiaries and Global Trust bank had lot of vested interest in various small companies. Both got bust over a period and investors lost heavily. Incidentally the promoters of these Comapnies are from Hyderabad. It is time SEBI takes a view on the number of subsidiaries a holding company can have and the method of accounting of mutual interests among the companies with an eye on the black money component entering in a camouflaged manner. It would be also worthwhile to consider a ceiling for the number of subsidiaries a holding company can have. Ideally, it should not exceed two or three to maintain the credibility and  to have some checks and balances on the inter Company transactions in the interests of the investors and other stake holders.

Dr T V Gopalakrishnan 

5:25 scheme and increasing trend in bad debts.

5:25 Scheme scheme is an officially permissible evergreening of long term advances which helps banks to sanction fresh loans and camouflage bad loans. In good old days, there was a system of scruitiny of large accounts by the RBI and banks were taken to task when the accounts were found sticky and non recoverable. With liberalisation of regulation and relaxation of supervion, the accountability for wrong doings has been given a go bye and entertainment of bad loans has been an accepted practice as they can be easily covered up. Sanctioning of abinitio bad loans is a known truth and they will eventually appear as NPAs after a few years and got written of. The Costs incurred by banks to maintain bad loabns in their books of accounts by way of supervsion of bad loans, legal expenses, insurance and maintenance of the assets of large borrwoers and final write off of loans if systematically calculated , would be mind boggling figure and unfortunately the tax payers and the depositors are made to bear the brunt. The issue of bad loans, the reasons behind their generation, how they distort banks balance sheets, how they affect the transmission of RBI's monetary policy , how they affect the cost of funds, the profitability, the morale of honest staff, etc if studied would give a great shock and there cant be any justification to keep the bad debts growing year after year under some pretext or other. Time has come to have a practical solution to prevent the formation of bad debts and nip in the bud itself the reasons behind the bad debts formation by bringing in strict discipline both on the bankers and the borrowers. The loot of money through bad debts needs to be arrested completely with immediate effect and this is possible only by being strict right from the appraisal onwards till the recovery of loans on an ongoing basis and by building up sufficient reserves to liquidate bad debts in case of any by levying a fees for wrong doings both on the part of borrowers and lenders. Ethical deficit crept into the system can be eradicated only with strict punishment and penalty and this needs to be attempted without  any fear or favour. Perhaps, the stake holders of banks Viz the depositors, shareholders, good borrowers, general customers, tax payers have to organise and fight the issue of generation of bad debts. Will it happen in our scheme of things?


Dr T V Gopalakrishnan 

(This comment appeared in Money Life )

IDFC thinks big but shareholders can only think small

IDFC thinks big but the shareholders think small as its bad debts and restructured assets put togother work out to 15% which is significantly very high at the start and with the high trend of ever increasing bad debts and the tendency of borrowers not to repay the debts under some pretext or other in the entire banking system, the IDFC bank will have a tough time to contain bad debts formation and reccovery of accummulated debts. However, the IDFC has scope but cannot hope too high as the environment to work as a bank is not that conducive going  by the experience of many a banks in the system. Besides, the competition let loose with the opening up of banks for payment and settlements and small banks, the challenges are really very high and is definitely not going to be cake walk for IDFC. It has to have an entirely different business model with high technolgy combined with highly skilled human resources who can handle and bring in excellent Customer service in all areas of banking  with involvement, commitment, expertise and knowledge of what they do .    

Dr T V Gopalakrishnan