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was agreed and implemented in terms of an agreement between the Central Government and the RBI in 1990 was arbitrarily withdrawn by means of an oral order without any rhyme or reason and the retirees are made to suffer since 2005 in the fag end of their life.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   

Bad debts are nothing but an open loot

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 NonPerforming and  after a few years they  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 a 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 borropwers. 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 fear or favour. Will it happen in our scheme of things? It is high time the tax payers and depositors raise their voice against formation of bad debts in banks and seek justice as they are the ultimate losers because of bad debts in the banks.

Dr T V Gopalakrishnan

(This comment appeared in Money lIfe dated 29/9/15).