The advancement in technology is appreciable and from that angle this is welcome But it can be taken advantage of only by a few who are very comfortable in using mobile and latest facilities. Only a fraction of the population can take advange of this facility and that too at the inconvenience of many in the society is a fact which cannot be ignored.Physically handicapped, senior citizens and illiterates and semi literates are at a disadvantage and it is unfair.Practical problems of convincing the TC who is hard presssed with several bogies under his supervision will take away the charm of the traveller having a mobile ticket confirmation. This sort of technological advancement is more useful if put into tracking transactions in cash and detecting tax evasion taking place through out the country day in and day out particularly by the rich and literates.
Dr.T.V.Gopalakrishnan
(This appeared in ET dt 3/01/12)
Tuesday, January 3, 2012
RBI and the Govt to act togother
Your editorial comment on the economy was apt (“Little hope for 2012,” January 2). The year 2011 will go down in the history of our economy as the worst performing year since India’s economic liberalisation. The reason you have given for the poor performance – the mismanagement of the economy by the government – shows your unbiased approach and openness in assessing an economy and that is commendable. But it should be noted that the growth potential of our economy remains strong and a little more attention from the government and other institutions, particularly the Reserve Bank of India (RBI), can make 2012 a better year. Inflation is softening and the situation may improve with a favourable monsoon and credit support. RBI can consider reducing the interest rates and improving the liquidity further to ease monetary conditions and attract fresh investments. RBI and the government have to make a joint effort to instil economic confidence by all means. If they are able to do so, 2012 may not end up being such a bleak year after all.
T V Gopalakrishnan Mumbai
T V Gopalakrishnan Mumbai
Sunday, January 1, 2012
Govt and Lokpal bill
Dr.T.V.Gopalakrishnan , Mumbai , says: The GOVT has hot been observed to be sincere and honest in eradicating corruption and black money in the economy which take away the strength of the economy. The Lokpal bill could have been brought out by the GOVT right royally sensing the mood and demand of the people. The awareness among the people about the corrupt practices very cleverly perpetrated by politicians and bureaucrats has been well spread by Sri Anna Hazare and his team and it is not easy for any force to erase that from the people. Earlier the Govt realises the better for the present and future Govts. Time has come with or without a lokpal bill to remove corruption from society and a proper bill will only be a facilitator.With the passage of an effective bill the Govt can earn the lost image and goodwill and it should put all positive efforts to bring out a bill acceptable to the society. Trying to be oversmart in avoiding an effective bill in the name of politics will not be tolerated by any right thinking person.
1 Jan 2012, 1615 hrs IST
(This appeared in ET dt 1/1/2012
1 Jan 2012, 1615 hrs IST
(This appeared in ET dt 1/1/2012
The present slump in the world economy is an opportunity for India to perform well keeping aside the political differences among the parties and concentrating on economic growth.Inflation is on the decline and the supply side constraints need to be further removed.The instituions set up for various purposes should be made more accountable and deliver the goods.What the economy needs is accountability from all categories of people particularly politicians,bureaucrats,industrialists and professionals. The various administative,regulatory and supervisory wings functioning in the economy need to concentrate on their role and responsibilities and see that their contribution is reflecting in the economy.The foremost requirement of the economy isto ensure that the data inrespectofGDP,Poverty,employment,inflation,exports , imports tax collections,deficit,etc have some interlinkages and reflect more or less the realities. Corruption and black money create havoc in the economy and distort the very fabric of the economy leading to chaos in the implementation of polices. Infrastructure is the basis for economic growth and all efforts need to be made to strengthen it without allowing politics to interfere. Involve midle class and lower class as part of decision making in some segments to ensure that implementation of certain policies is a grand success.Create awareness about the need for the growth of economy and its benefits to the nation among the masses.TheGovt has to do the needful.
T.V.Gopalakrishnan
(This appeared in ET dt 1/1/2012).
T.V.Gopalakrishnan
(This appeared in ET dt 1/1/2012).
Tuesday, December 27, 2011
Discipline borrowers and minimise NPAs
This refers to your edit ‘credit where it is not due’ (December 26,2011).The NPA menace which was kept under some check for a few years has again been raising its ugly head. More NPAs mean, more resources the banks have to find to maintain capital adequacy. The loss to the economy on account of NPAs is unfortunately made to bear by tax payers as the Govt loses its revenues on account of reduction of GDP because of non performance of assets and also is made to contribute to capital through budgetary provisions to enable the banks to maintain the capital adequacy standards as per Basle norms. Further, the cost of NPAs is unknowingly borne by all stakeholders of banks other than by the bad borrowers is an unfortunate reality. The fact that banks can camouflage NPAs and keep them under the carpet is well known and the hidden NPAs are difficult to be identified. Added to this, the permission granted by the Reserve Bank in August 2008 to restructure some of the unsatisfactory accounts and treat them as standard assets if found viable, has helped banks to keep the NPAs down artificially.
It is for the Govt and the Reserve Bank to seriously view the NPA menace and introduce a lasting solution perhaps acceptable to all stakeholders of banks other than borrowers. Time has come to give a serious thought to discipline the borrowers and to contain the problem of NPAs. Since only banks and borrowers do figure in the generation of NPAs, the only and ideal way to come out of this ever greening problem is to have a built in mechanism to liquidate NPAs by means of creating a fund under the nomenclature Precautionary Margin Reserve Fund (PMR) involving all borrowers and banks themselves. This has to be done on a systematic and scientific basis. Over a period this fund will be more than the formation of NPAs, and this approach can strengthen the vitally missing credit discipline among the borrowers. This suggestion developed through a statistical model has been found workable resulting in disciplining the borrowers and making the balance sheet of the banks strong. The Govt is the major beneficiary in case the solution is introduced.
T.V. Gopalakrishnan
(edited version of this appeared in Business-Standard dt 27/12/11).
It is for the Govt and the Reserve Bank to seriously view the NPA menace and introduce a lasting solution perhaps acceptable to all stakeholders of banks other than borrowers. Time has come to give a serious thought to discipline the borrowers and to contain the problem of NPAs. Since only banks and borrowers do figure in the generation of NPAs, the only and ideal way to come out of this ever greening problem is to have a built in mechanism to liquidate NPAs by means of creating a fund under the nomenclature Precautionary Margin Reserve Fund (PMR) involving all borrowers and banks themselves. This has to be done on a systematic and scientific basis. Over a period this fund will be more than the formation of NPAs, and this approach can strengthen the vitally missing credit discipline among the borrowers. This suggestion developed through a statistical model has been found workable resulting in disciplining the borrowers and making the balance sheet of the banks strong. The Govt is the major beneficiary in case the solution is introduced.
T.V. Gopalakrishnan
(edited version of this appeared in Business-Standard dt 27/12/11).
Saturday, December 24, 2011
GDP , Economic Activities and Taxation policy
There are varieties of economic activities.But to what extent these economic activities and income generated from them reflect in GDP or tax revenue etc are in serious doubt. In various cities like Mumbai, Chennai Delhi, Calcutta, there are varieties of markets dealing right from scraps to gold bullion. There are whole sale and retail markets and transactions are generally in cash running into lakhs and even crores. These merchants are seldom seen issuing any receipts and it is difficult to assess tax collection if any. Apart from loss of revenue to the Govt, this system of transactions encourage black money and indiscipline in the society. It is desirable in the larger interest of the society that these transactions and the turn over should reflect online in some centralised data collection centre making use of the IT strength of the country. The very system of data generation will help to throw some light on the volume of transactions and money generated in the economy. This will pave way for formulation of policies on taxation,improvement of financial and banking inclusion, tracking black money generation and bringing in discipline and order among the trading community in paricular for conducting their business as per the laws of the country. It is not that difficult to get the transactions properly accounted for. Insistence of official receipt and getting the transactions tracked through IT will do the trick.The benefit is for the economy and the society.
Wednesday, December 21, 2011
NPA Menace
Time for the Govt and the Reserve Bank to come out of the morass caused by Non Performing Advances ( NPAs) in Banking and the Economy.
The NPA menace which was kept under some check for a few years has again been raising its ugly head disturbing the peace of mind of authorities i.e. the Govt and the Reserve Bank. More NPAs mean, more resources the banks have to find to maintain capital adequacy. As long as lending remains an inevitable function of banking and banks have to deal with human beings as borrowers, this problem will continue to haunt the banks. Further, the changes in economic scenario which gets influenced by several micro and macro economic factors that include both domestic and international such as declining GDP growth, high inflation, financial instability, exchange and interest rate volatility, monsoon conditions etc where the management of banks have no control whatsoever, also affect the working of banks adversely and resulting in increased level of NPAS. The present approach by the regulator to expect the banks to make good the loss on account of NPAs by charging to banks' profit and loss account at the cost of all stakeholders of banks viz; depositors, borrowers, shareholders, employees and even customers is neither ethical nor prudential by any reckoning. Further the loss to the economy on account of NPAs is unfortunately made to bear by tax payers as the Govt loses its revenues on account of reduction of GDP because of non performance of assets and also is made to contribute to capital through budgetary provisions to enable the banks to maintain the capital adequacy standards as per Basle norms. The position of Public Sector Banks NPAs vis-a-vis advances, deposits and investments for the period 1993 to 2011 is given below.
( Amount in Rs Crores)
Year Advance NPA NPA as % of Total Advances Deposit CD Ratio Investment Investment Deposit Ratio
1993 1,69,340 39,253 23.2 2,63,315 58.5 99,889 37.9
1994 1,65,621 41,041 24.8 3,03,392 48.4 1,32,810 43.7
1995 1,97,352 38,385 19.5 3,48,938 50.9 1,50,432 43.1
1996 2,31,321 41,661 18.0 3,90,820 53.1 1,62,667 41.6
1997 2,44,214 43,577 17.8 4,49,329 49.0 1,91,058 42.5
1998 2,84,971 45,653 16.0 5,31,723 48.9 2,27,102 42.7
1999 3,25,328 51,710 15.9 6,36,810 46.7 2,76,802 43.5
2000 3,80,077 53,294 14.0 7,37,280 47.8 3,33,414 45.2
2001 4,42,134 54,773 12.4 8,59,376 48.2 3,94,107 45.9
2002 5,09,368 56,473 11.1 9,68,623 52.6 4,54,509 46.9
2003 5,77,813 54,090 9.4 10,79,393 53.5 5,45,668 50.6
2004 6,61,975 51,541 7.8 12,29,462 53.8 6,26,176 50.9
2005 8,77,825 48,399 5.5 14,20,750 61.8 6,60,674 46.5
2006 11,34,724 41,358 3.6 16,22,481 69.9 6,33,557 39.0
2007 14,64,493 38,968 2.6 19,94,199 73.4 6,64,645 33.3
2008 18,19,074 40,595 2.2 24,53,868 74.1 7,99,841 32.6
2009 22,83,473 45,156 2.0 31,12,748 73.4 10,12,666 32.5
2010 27,01,019 57,301 2.1 36,91,802 73.2 12,05,783 32.7
2011 33,05,632 71,047 2.2 43,72,985 75.6 13,28,534 30.4
Source : Trend and Progress of Banking various issues.
It is gratifying to observe that the gross NPAs as percentage of gross advances have drastically come down from 23.2% in March 1993, (when the concept of NPA was first introduced in terms of Financial Sector Reforms) to 2.2 % in March2011. Working of banks got further streamlined based on banking sector reforms introduced in 1998. The results are very encouraging. In the decade 2000 to 2010s, Banks could bring down considerably its NPAs. Many factors have come to the rescue of banks in keeping the NPAs down. The banks were identifying the NPAs through manual process all these years and it was humanly impossible to assess the correct position of NPAs. The banks could manage to keep many NPAs under the carpet and the hidden NPAs were difficult to be identified as banks had umpteen ways to camouflage NPAs. The boom in real estate prices came handy for banks to bring pressure on borrowers who also found it advantageous to sell off their assets and come out of banks' clutches. Further, Debt Recovery tribunals, Lok Adalats, implementation of SURFAESI Act 2002 for recovery of dues, improved performance of the economy and bank's own performance in terms of better profitability on account of enhanced efficiency, productivity, competition, better return out of investments and diversification of operations greatly contributed to bring down NPAs. Huge write offs of NPAs again at the cost of shareholders who include the Govt, effective regulation and supervision of the Reserve Bank had also played an important and effective role in keeping down the level of NPAs. The provisioning requirements of the Reserve Bank in particular compelled banks to be vigilant in minimising the NPAs. Added to this, the permission granted by the Reserve Bank in August 2008 to restructure some of the accounts (though strictly need to be classified as NPAs) and treat them as standard assets if found viable, limited the growth of gross NPAs. The gross NPAs of public Sector banks with all aforesaid adjustments stood at Rs 71047 crores as at end March 2011 are still staggering and causing concern. The steep increase in advances since 2005 onwards (CD ratio increased from 61.8 in 2005 to 75.6 in 2011) is something abnormal and how much of this would turn out to be NPAs is worth watching. With the recent switch over to computerised system to identify the NPAs, the position has been moving from bad to worse. The high interest rate regime, persisting inflationary and near recessionary conditions in the domestic economy, and discouraging economic scenario in US and Europe, the chances of generation of more NPAs in coming months cannot be ruled out. The fact that NPAs affect the economy in general and all stakeholders of banks in particular adversely and finally lead to bail out of banks with budget allocations has been the trend, has to be recognised and this approach to manage NPAs needs a final go-bye.
Time has come to give a serious thought to this NPA menace and a lasting solution to put up with NPAs and at the same time discipline the borrowers without jeopardising the interests of other stake holders has to be attempted. Since only banks and borrowers do figure in the generation of NPAs, the only and ideal way to come out of this ever greening problem is to have a built in mechanism to liquidate NPAs by means of creating a fund under the nomenclature Precautionary Margin Reserve Fund (PMR) involving all borrowers and banks themselves. This has to be done on a systematic and scientific basis. Over a period this fund will be more than the formation of NPAs, and this approach can strengthen the vitally missing credit discipline among the borrowers.
There is a saying that all truth passes through three stages. First it is ridiculed. Second it is violently opposed. Third it is accepted as being self evident( Arthur Scapenhauer). The suggestion to remedy the NPA menace through creation of fund i.e. PMR should not be similar to that and kept aside. Bankers and borrowers will ridicule the suggestion first and oppose it as it affects them directly. Banks will have to tighten the monitoring of accounts on a continuous basis to rate the borrowers, discipline them and levy the contribution towards the PMR fund based on borrowers' rating. Bankers are generally inclined to satisfy the borrowers and do not want to incur any displeasure by being strict and vigilant with them for fear of losing the account when the going is good. Borrowers will oppose creation of this fund as it adds initially to their cost of funds and expects them to adhere to strict credit discipline though they can derive the benefit in the long term. Besides, the rating will have reputation risk with attendant consequences.
It is for the Govt and the Reserve Bank to seriously view the NPA menace and introduce a solution perhaps acceptable to all stakeholders of banks other than borrowers. This suggestion developed through a statistical model has been found workable resulting in disciplining the borrowers and making the balance sheet of the banks strong. The Govt is the major beneficiary in case the solution is introduced.
(Views are personal).
Dr.T.V.Gopalakrishnan
(Edited Version of this write up appeared in The Hindu-Business Line dated 19/12/11)
The NPA menace which was kept under some check for a few years has again been raising its ugly head disturbing the peace of mind of authorities i.e. the Govt and the Reserve Bank. More NPAs mean, more resources the banks have to find to maintain capital adequacy. As long as lending remains an inevitable function of banking and banks have to deal with human beings as borrowers, this problem will continue to haunt the banks. Further, the changes in economic scenario which gets influenced by several micro and macro economic factors that include both domestic and international such as declining GDP growth, high inflation, financial instability, exchange and interest rate volatility, monsoon conditions etc where the management of banks have no control whatsoever, also affect the working of banks adversely and resulting in increased level of NPAS. The present approach by the regulator to expect the banks to make good the loss on account of NPAs by charging to banks' profit and loss account at the cost of all stakeholders of banks viz; depositors, borrowers, shareholders, employees and even customers is neither ethical nor prudential by any reckoning. Further the loss to the economy on account of NPAs is unfortunately made to bear by tax payers as the Govt loses its revenues on account of reduction of GDP because of non performance of assets and also is made to contribute to capital through budgetary provisions to enable the banks to maintain the capital adequacy standards as per Basle norms. The position of Public Sector Banks NPAs vis-a-vis advances, deposits and investments for the period 1993 to 2011 is given below.
( Amount in Rs Crores)
Year Advance NPA NPA as % of Total Advances Deposit CD Ratio Investment Investment Deposit Ratio
1993 1,69,340 39,253 23.2 2,63,315 58.5 99,889 37.9
1994 1,65,621 41,041 24.8 3,03,392 48.4 1,32,810 43.7
1995 1,97,352 38,385 19.5 3,48,938 50.9 1,50,432 43.1
1996 2,31,321 41,661 18.0 3,90,820 53.1 1,62,667 41.6
1997 2,44,214 43,577 17.8 4,49,329 49.0 1,91,058 42.5
1998 2,84,971 45,653 16.0 5,31,723 48.9 2,27,102 42.7
1999 3,25,328 51,710 15.9 6,36,810 46.7 2,76,802 43.5
2000 3,80,077 53,294 14.0 7,37,280 47.8 3,33,414 45.2
2001 4,42,134 54,773 12.4 8,59,376 48.2 3,94,107 45.9
2002 5,09,368 56,473 11.1 9,68,623 52.6 4,54,509 46.9
2003 5,77,813 54,090 9.4 10,79,393 53.5 5,45,668 50.6
2004 6,61,975 51,541 7.8 12,29,462 53.8 6,26,176 50.9
2005 8,77,825 48,399 5.5 14,20,750 61.8 6,60,674 46.5
2006 11,34,724 41,358 3.6 16,22,481 69.9 6,33,557 39.0
2007 14,64,493 38,968 2.6 19,94,199 73.4 6,64,645 33.3
2008 18,19,074 40,595 2.2 24,53,868 74.1 7,99,841 32.6
2009 22,83,473 45,156 2.0 31,12,748 73.4 10,12,666 32.5
2010 27,01,019 57,301 2.1 36,91,802 73.2 12,05,783 32.7
2011 33,05,632 71,047 2.2 43,72,985 75.6 13,28,534 30.4
Source : Trend and Progress of Banking various issues.
It is gratifying to observe that the gross NPAs as percentage of gross advances have drastically come down from 23.2% in March 1993, (when the concept of NPA was first introduced in terms of Financial Sector Reforms) to 2.2 % in March2011. Working of banks got further streamlined based on banking sector reforms introduced in 1998. The results are very encouraging. In the decade 2000 to 2010s, Banks could bring down considerably its NPAs. Many factors have come to the rescue of banks in keeping the NPAs down. The banks were identifying the NPAs through manual process all these years and it was humanly impossible to assess the correct position of NPAs. The banks could manage to keep many NPAs under the carpet and the hidden NPAs were difficult to be identified as banks had umpteen ways to camouflage NPAs. The boom in real estate prices came handy for banks to bring pressure on borrowers who also found it advantageous to sell off their assets and come out of banks' clutches. Further, Debt Recovery tribunals, Lok Adalats, implementation of SURFAESI Act 2002 for recovery of dues, improved performance of the economy and bank's own performance in terms of better profitability on account of enhanced efficiency, productivity, competition, better return out of investments and diversification of operations greatly contributed to bring down NPAs. Huge write offs of NPAs again at the cost of shareholders who include the Govt, effective regulation and supervision of the Reserve Bank had also played an important and effective role in keeping down the level of NPAs. The provisioning requirements of the Reserve Bank in particular compelled banks to be vigilant in minimising the NPAs. Added to this, the permission granted by the Reserve Bank in August 2008 to restructure some of the accounts (though strictly need to be classified as NPAs) and treat them as standard assets if found viable, limited the growth of gross NPAs. The gross NPAs of public Sector banks with all aforesaid adjustments stood at Rs 71047 crores as at end March 2011 are still staggering and causing concern. The steep increase in advances since 2005 onwards (CD ratio increased from 61.8 in 2005 to 75.6 in 2011) is something abnormal and how much of this would turn out to be NPAs is worth watching. With the recent switch over to computerised system to identify the NPAs, the position has been moving from bad to worse. The high interest rate regime, persisting inflationary and near recessionary conditions in the domestic economy, and discouraging economic scenario in US and Europe, the chances of generation of more NPAs in coming months cannot be ruled out. The fact that NPAs affect the economy in general and all stakeholders of banks in particular adversely and finally lead to bail out of banks with budget allocations has been the trend, has to be recognised and this approach to manage NPAs needs a final go-bye.
Time has come to give a serious thought to this NPA menace and a lasting solution to put up with NPAs and at the same time discipline the borrowers without jeopardising the interests of other stake holders has to be attempted. Since only banks and borrowers do figure in the generation of NPAs, the only and ideal way to come out of this ever greening problem is to have a built in mechanism to liquidate NPAs by means of creating a fund under the nomenclature Precautionary Margin Reserve Fund (PMR) involving all borrowers and banks themselves. This has to be done on a systematic and scientific basis. Over a period this fund will be more than the formation of NPAs, and this approach can strengthen the vitally missing credit discipline among the borrowers.
There is a saying that all truth passes through three stages. First it is ridiculed. Second it is violently opposed. Third it is accepted as being self evident( Arthur Scapenhauer). The suggestion to remedy the NPA menace through creation of fund i.e. PMR should not be similar to that and kept aside. Bankers and borrowers will ridicule the suggestion first and oppose it as it affects them directly. Banks will have to tighten the monitoring of accounts on a continuous basis to rate the borrowers, discipline them and levy the contribution towards the PMR fund based on borrowers' rating. Bankers are generally inclined to satisfy the borrowers and do not want to incur any displeasure by being strict and vigilant with them for fear of losing the account when the going is good. Borrowers will oppose creation of this fund as it adds initially to their cost of funds and expects them to adhere to strict credit discipline though they can derive the benefit in the long term. Besides, the rating will have reputation risk with attendant consequences.
It is for the Govt and the Reserve Bank to seriously view the NPA menace and introduce a solution perhaps acceptable to all stakeholders of banks other than borrowers. This suggestion developed through a statistical model has been found workable resulting in disciplining the borrowers and making the balance sheet of the banks strong. The Govt is the major beneficiary in case the solution is introduced.
(Views are personal).
Dr.T.V.Gopalakrishnan
(Edited Version of this write up appeared in The Hindu-Business Line dated 19/12/11)
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