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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King Fisher closure and Air fare Increase

''This approach of airlines needs to be curbed and exploitation of the situation is not good for any business . This sort of greed to extract money will not be good and carries lot of illwill and curse. There should be ethics and honesty in any business to last long. The Govt also should fix a ceiling beyond which Airlines should not charge. The ceiling can be linked to the distance so that travellers also can have some calculations. The present tendency to take the flight charges to the roof without any rationale poorly reflects on lack of adminstrative controls and the image of the airlines.Will Some one look into this?.'' (This comment in response to an Article on King Fisher airlines appeared in Times Of India Dated 21/10/12)  T.V.Gopalakrishnan

Marriage and Toilets

The Minister's approach is welcome and it should be taken seriously by all right thinking citizens. People are able to have a mobile phone but they are prepared to live without a toilet, the very basic necessity. In fact Minister deserves applause for openly pleading and compelling people to have more of toilet facilities which are very essential and a must to maintain personal and society hygene. Most of the cities and important pilgrim centres have no toilet facilities and people use public road and gardens for easing themselves. Even in Mumbai one can see people ease themselves in Race course in the morning hours as there are no toilets anywhere near. One wonders with all developments, improved GDP growth and growing literacy standards how people are tolerating the apathy on the part of administration to provide common toilets in public places. The Minister can even take some initiative to have a RTTF ie right to have toilet facility like RTE, bill passed in Parliament. The schools and colleges also should consider to educate people on this issue. Nothing wrong in that Society and the people should remain clean.(This comment in response to Miniter Jayaram Ramesh appeal to brides to insist for Toilets as a condition to get married appeared in Times of India dated 20/10/12) Dr.T.V.Gopalakrishnan

Two Kitchens and additional Cylinders

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	''This is utter nonsense. In India as it is Joit family system has broken up and nuclear family system in vogue will also get shattered with this move of the Govt to allow additional cylinders based on two kitchen Concept. In metro centres like Mumbai Delhi etc it is unimaginable to have two kitchens in flat where one kitchen itself is a luxury.How the brian works in taking such illogical decisions is really a wonder and deserves special award. This will only pave way to enhance corruption and make people to invent and innovate to have false documentary proof to show that they have two kitchens. As it is with bribe any document is possible and such erroneous decisions will only add to the mess already created by the Govt in reducing the cylinders quota. The best approach should have been to keep a watch on false distribution of cylinders meant for domestic use to commercial use which is rampant. Many families use only six to seven cylinders and distributors records may be showing as 12 cylinders and more. This is where the problem lies. The Govt has to ensure that by no stretch of imagination misutilisation is possible and for that they must have accurate data on families and commercial establishments.Corrupt practices in vogue in oil companies and distributing agents are the major issues to be tackled. Instead of this , the present approach to split the kitchen into two will bring more of family problems and end up with more demand for cylinders than what was original demand before the reduction of the quota.The move is to say the least the most foolish.'' (This comment   on the article ''Two kitchens can get you two LPG connections " appeared in Times of India daated 21/10/12)

Confidence Deficit

This refers to your editorial “Loyalty above duty” (October 11). Having allowed and tolerated all sorts of scams and corruption all these years, it would have been better if the prime minister had maintained his characteristic silence rather than talk about measures to prevent corruption. Considering his government has lost credibility, particularly in curbing corruption, his latest statement that the Prevention of Corruption Act would be amended will do little to convince people.

Besides, the masses have suffered at the hands of high inflation, poor GDP growth, unemployment, high fiscal and current account deficits and so on. The government’s insensitivity to people’s problems has affected their morale. So, the high hopes riding on the prime minister when he took over in 2004 seem to have faded and cannot be easily revived.

(This letter appeared in Business Standard dated 12/10/12).

Improve Cash flow by being economical in spending and bringing back the travelling public


King Fisher can come back to business provided it regains the confidence of the travelling public particularly middle class. The KFA has to be very very economical in all its dealings to start with. By offering round trip tickets and group booknig for family and other groups with very good discounts, it has to ensure that the flights are filled up without having any vacant seat.2)It has to start with flights where the potential to fillup all seats are Optimum. It has to allow excess baggage at some concessions. If possible it can canvass business for one or two years from very regular travellers for a lumsum initial payment for 10 or 15 trips and improve its cash flows.3) Make some arrangements through Mr Mallyas contacts and influence to clear the wage arrears of its employees and earn their goodwill and support to run the business. They themselves can canvass passengers through their special efforts and small incentives. 4) Give some special incentives to travel agents to canvass booking and see that the flights are full.5) Convince bankers to defer insistence on immediate reapyment of loans and see that as and when cash flow improves their dues are cleared in easy instalments.6) Negotiate with tax department and suppliers of fuels to receive payments on easy terms and instalments depending on the improved cash flow.7) Avoid heavy payments beyond the capacity to Executives till such time the company reaches break even point.8) Raise interest free loans from well wishers of the Company against issue of tickets towards repayment of loans.The KFA enjoys very good patronage from many bigwigs of the society and it should not be difficult to raise a few crores.8) Let Mr Mallya resist to exhibit his flamboyancy using the Company's funds at any cost.He has to project the image of a business professional and show his business acumen.He can easily target corporate clients for their travelling needs through King Fisher.9) The company can take a lot of small steps to make a come back.If other airlines can run profitably why not KFA?

( This comment appeared in Business Standard dt13/10/12 in response to an Article on KFA and Mr Mallya)