Find own Resources to recapitalise the State owned banks

Find own resources to recapitalize the  state owned banks banks.

Apropos your editorial How to recapitalize State Owned banks ( Et dated 2/3/16) which are steep in the red because of heavy accumulation of bad debts due to banks’ own lack of professionalism and economic slow down, it would be better and ideal to find own resources to recapitalize and prevent formation of bad debts in future. What the banks have to do is to freeze the bad debts and separate them from the balance sheets as on a date fixed and keep them under a Special designated escrow accounts and resort to recovery measures with all available legal remedies as of today and the proposed bankruptcy laws as and when passed. Government should provide only the guarantee equivalent to the bad assets which can be adjusted against the recoveries. To prevent future formation of bad debts and their liquidation, the banks should not depend on any of its stakeholders and manage to contain the bad debts formation with stringent credit discipline in the conduct of its advances portfolio and ensuring equally enforceable discipline among the borrowers by educating them on the need to manage the borrowed funds with utmost caution and generate adequate cash flows to service the debts and its repayments regularly. In the event of deviation from the envisaged discipline on the part of the banks and the borrowers, the RBI as a regulator should impose penalty on both and maintain a fund separately to liquidate the NPAs  at periodical intervals. The stakeholders of PSBs particularly the Government, the tax payers, the depositors and others should be permanently spared in rescuing the banks from bad debts because of their own non performance and that of the borrowers. The NPA menace calls for a lasting self correcting mechanism without depending on others.  

Dr T V Gopalakrishnan
( This letter appeared in ET dated 3/3/2016) 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Why FICCI should not come to banks' Rescue

This suggestion  by FICCI to set up AMCs  to take over banks' non performing loans  is nothing but transferring the disease of elephantiasis from one leg to another. Instead the FICCI should advise / direct all its members to conduct the loan portfolio with the discipline expected of them. No representative board has spoken a word about the bad debts of banks because of the borrowers' undisciplined approach to banks and availing of credit without bothering to utilise them properly for business expansion. The diversion of funds by the borrowers is the major cause of bad debts and this needs to be checked and controlled by the Federation if at all they care for public deposits and banks health. The borrowers know well that the money banks lend are nothing but deposits of public and the banks are only acting as trustees of these deposits and these funds have to be repaid on demand but the way they misuse the funds and dare not to repay come what may approach needs to be condemned and such borrowers have to be taken to task. The Chamber of commerce and Federation of Indian Chambers of Commerce and Industry have a moral responsibility to educate their members and cooperate with banks to recover the funds taken as loans to expand the business.

( Comment sent to BS dated 21/2/16)

More Credit , more NPAs?

It is a fact that some of the normal economic theories have no relevance to India. As rightly said, investment in India is rate insensitive and this is what we experience. Like wise NPA formation in banks is also insensitive to the theory of credit deployment. More you deploy the credit the expectation is that more it will produce, more employment it will generate,more demand it will create, more revenue will accrue to the economy,and there will be less of fiscal deficit and less of NPAs. Nothing happens in our economy. More the loan, less is the production, less is the employment, less is the revenue , more is the deficit, more is the NPAs and more wealth to the loan takers and more wealth to the politicians, bankers, brokers and middlemen.. Banks suffer, Depositors suffer, good borrowers suffer, and tax payers also suffer because of more NPAs. In India no economic theory works is the ground reality and politicians know more about this than the economists. Bureaucrats also know the theories well but they also know how not to practise the theories . Politicians are also totally insensitive to any economic theory or to any comment .

Dr T V Gopalakrishnan

( This comment is published in BS dated 20/2/16 against the Article by TCA Srinivasa Raghavan)

Diagonise the disease properly and then presribe the medicine

The reasons behind the huge accumulation of bad debts  in PSBs need to be correctly understood. There are no institutions to finance the infrastructure projects of the country and the banks are forced to lend on a long term basis for which they have no expertise or long term funds. Asset liability Mismatch , lack of adequate cash flows to recycle the funds are affecting the banks very badly. Besides these, the interference  from the Government through various ways also compels the banks to act unprofessionally knowingly well that such an approach will land the banks  in trouble but they have no choice. There is also no bond market to take care of the long term needs of large corporates engaged in the build up of infrastructure very badly needed by the country for its economic growth. The banks financing long term projects do not have an opportunity to avail of the take out Finance facility and their funds are locked up.

The other reason is  the appointment of Directors and top management executives  in banks based more on extraneous considerations other than merit and their commitments are not to safeguard the banks funds but to safeguard the interests of their masters. Further the typical public sector character of being indifferent and non involvement in the work by the human resources behind the institutions cause such a damage which can be quantified only in terms of Non performing loans. Lack of Corporate Governance and laxity of regulation and supervision account for the other reasons behiind the Non performing  loans. The only solution perhaps is to discipline both the banks and the borrowers and educate them to conduct the loan portfolio in a very professional manner by having a very close monitoring and self correcting mechanism by way of penalty both from banks and borrowers for all their wrong doings from the moment the loans are sanctioned till they are liquidated. Prevention is always better than cure. Both anesthetic  and deep surgery approach are painful and are the last resorts after the disease is well established. The other solution can be allowing the banks to raise long term resources with special regulatory features and tax incentives..  

Dr T V Gopalakrishnan

Cover up wont work

Apropos the editorial, "Tip of the iceberg", the banking system needs to implement reforms, structurally and functionally, to improve its finances and operations and provide support to the economy.

That camouflaged bad debts are equal to or more than the disclosed bad debts can't be hidden anymore because of the recurring damages they bring to the economy. It is time to recognise and identify the overall weaknesses of banks due to the absence of a bond market or institution to finance long-term projects, the interference of politicians and bureaucrats in banking operations and a legal system that is not up to speed. A cover-up will only damage the health of banks further; this is definitely not in the interest of the economy, its financial system and the people.

 Dr T V Gopalakrishnan

Archaic System and procedures in RTO and Treasury

 I happened to visit the Regional Transport Office and the District Treasury Kakkanad, Kochi in connection with the Transfer of my car to Karnataka and to get the related documents and refund of excess tax paid towards vehicle tax. The work was done successfully but the taste of Government’s arrogance and the harrowing experience that I got is something I am not able to digest.The curse, the harassment, the displeasure and the insult meted out to me despite recognizing my old age and experience as a public servant in an Institution having national and international stature is something unbearable and beyond any stretch of imagination one can have about a government institution in a state where literacy is the highest, people are highly conscious of their rights and the State has several credits for many a welfare schemes and is far ahead of many other states of India. Devils in the form of systems and Procedures in God’s own Country need to be dealt with urgently to enhance the image of the Government and improve the ease of doing business.

The staff  attached to both RTO and the Treasury are found to be exceptionally good, courteous , helpful and definitely one cannot find fault with them for any deficiencies on their discharge of responsibilities but the fact that the  archaic systems and procedures in vogue come in their way of dealing with the public and satisfying with their requirements. One incognito visit by any official to the RTO and the Treasury and interaction with the crowded public in these offices  will get a very clear picture of the suffering, harassment the public undergo on a daily basis and the pressure of work, the frustration the displeasure, the curse the staff incur from public which are  definitely avoidable if the administration opens its eyes and views the issues involved with proper perspective and initiate action using technology and the human resources with improved systems and procedures securing the governments interests and serving the public with utmost care and satisfaction.

The areas where some changes can be comfortably thought of from my own experience relate to Communication system with the public through correspondence using e mail or other traditional methods, discussions, announcements and issue of proper notices and the disposal of cases using technology optimally, imparting of knowledge, systems and procedures to the officials through training and interactions in periodical meetings. The world is moving fast and we are all in the digital world and advanced Technology are at our disposal to meet the ever increasing services and responsibilities and the State like Kerala certainly cannot be lagging behind in updating their services in tune with the advancement of the technology..

It is high time the RTO office and the Treasury coordinate their work in such a way that they do not expose themselves their problems, differences and inefficiencies to public. I was advised to come and collect my refund personally although I am in Bangalore and the travel from one place to another these days is really difficult in view of physical inconveniences, making travel plans at short notices, stay arrangements and prohibitive expenses involved for conveyance etc. The refund sanctioned to me could have been easily remitted by means of a draft, cheque or through internet banking or handed over to an authorized person at my own risk and responsibility but the RTO office and the treasury in their wisdom preferred and Insisted on my personal appearance although I had enclosed a cancelled   blank cheque and requested for the remittance of refund of excess tax as and when sanctioned. Even the very senior officers have no discretionary power to overlook the procedure in exceptional cases and act, only smacks of arrogance of power to harass the public and perhaps to escape payments genuinely due to them. Having come to the office to collect the payment the suffering I had to undergo being a diabetic and senior citizen, shuttling between the RTO and the Treasury climbing five times the two floors of extra ordinary heights typical of Old Government offices made me mad and think for a moment donating the money to the Government but I resisted and decided to collect the refund at any cost so that I can donate the money to some really deserving which I am happily doing now. The staff involved both in RTO and the Treasury were really helpful, cooperative and courteous but the systems and procedures they have to adhere to were the stumbling blocks to disburse the money. 

The policemen on duty can definitely treat the public better with little more decency and politeness as the public coming to RTO office and the treasury are either to remit some taxes or collect some genuine dues to them from the Government. Serving public is an opportunity and there is lot of pleasure and satisfaction in that. The police officials can definitely behave in a civilized way particularly in places where only civilized and some what educated people caring for the laws of  the Country  visit to avail of some services to lead a dignified life.

Millions of people visiting RTOs on a day to day basis suffer,waste their money, energy , lose patience and carry a very bad image of the Government offices is a fact which cannot be  and need not be compromised by the tax payers.It is high time the Government offices update their technology , review their systems and procedures and provide hassle free services to public and better their own image. Times are changing, expectations are increasing and the service providers cannot be in their 19th century and say / claim the ease of doing busing is really easing. 

Allow the banks and the Reserve Bank to function professionally.

The banking system is in a mess and struggling to find ways and means to get out of the festering problem of non performing loans generated on a continuous basis due to lack of professionalism and political interference in its management. The so called autonomy has been elusive and the public sector banks survive because of budgetary support and subsidy provided by the depositors and other stake holders particularly good borrowers. The economy which is dependent on the banks for its growth is the worst sufferer and the loss suffered by it on a recurring basis is something beyond any calculation. However, the problem faced by the banks gets glossed over and no serious attempt has been made to introduce a lasting solution to make them healthy and self dependent for their survival. The solution to the menace of bad debts of banks lies within the   banks and the borrowers themselves by introducing a self correcting mechanism to liquidate the bad debts with the fines levied from bad borrowers and banks for their acts of undisciplined way of conducting the credit portfolio right from the sanction of loans to their liquidation. The problem of bad debts is definitely not an insurmountable one as is made out to be and this requires willingness and guts on the part of authorities to adopt the solution to discipline both the borrowers and banks without fear or favour. This much autonomy is essential for both  the banks and the  competent Reserver Bank to carry out their functions professionally without any sort of interference from the Government and politicians. 

Dr T V Gopalakrishnan

( This appears in the Hindu dated 15/2/16).