Practical Solution to Contain Formation of Non- Performing Advances in Banks

Respected Honourable PM Sir,

Sub:  Practical Solution to Contain Formation of Non- Performing Advances in Banks 

At the outset I request you to kindly excuse me in addressing a letter direct to you, as I have been approaching the authorities out of love for the nation to introduce a built in mechanism to contain the formation / prevention of Non performing loans in banks and the response has been lukewarm despite the menace of bad loans destroying the banks and weakening the economy affecting all its stake holders including the Government, the tax payers and depositors of banks.

In this context, I enclose a book “Management of Non Performing Advances” authored by me based on the Ph d thesis that I did and  well appreciated by the examiners for its lucid style of writing and containing a practical solution to the festering menace of NPAs faced by the banks and suffered by the economy perennially. The Examiner has even commented that some of the suggestions of the Researcher will have policy implications and if implemented will give far reaching good results both to the public sector banks as well as to the economy. It is also added that the simple statistical model suggested by the researcher can be given a fair trial. The book carries a Foreword from Dr C Rangarajan former Governor of RBI and  former Chairman Prime Ministers Economic Advisory Council to the former PM..  

I have been very closely following you and your strenuous efforts to take the economy forward with a wonderful vision for the nation to excel in the world with peace, welfare, safety, security and solid economic progress. The strong growth of the economy is dependent on the strong financial system of which the banking system is the nerve centre and its inherent weakness cannot and should not be allowed to come in the way of your mission and great vision. That the banking system is strong but not healthy is a fact and it suffers from certain man made deficiencies which can and need to be set right in the interest of the economy and its people. In this regard, I am tempted to quote Mr Atal Bihari Vajpayee our former Prime Minister “We cannot allow peoples faith in economic liberalization to be shaken by those who do business with an ethical deficit.”           

I send this book not for my personal recognition or some benefit .The efforts put on in bringing out a lasting solution to the problems arising out of Non performing advances should not go waste. I strongly feel that had the solution suggested in 2004 been implemented, the banking system now would have been strong and the credit discipline which is the essence of successful banking and expected of both the banks and the borrowers would have been well stabilized by now.

 Sir, I would like to end this letter with a quote from Swami Vivekananda that “Things do not grow better. They remain as they are; and we grow better by the changes we make in them”. It is high time that banks and borrowers change for the better with appropriate action from the powers that be.

With respects and regards,

Yours faithfully,

A well wisher

Dr T V Gopalakrishnan

Good Economics, Good Politics all Depend on Good Governance

The write up good economics is good politics ( The Hindu dt 10/3/16) no doubt reads well and highlights the plus and minus of the budget presented by the Finance Minister for the year 2016-17. The intentions to improve the agricultural and rural sector in particular, which  remained  neglected for decades,  with lots of incentives and inputs if acted upon seriously than  to remain a mere rhetoric  with  upcoming elections in mind  can prove to be a very good politics with good economics. The number of Institutions and agencies involved in these sectors are very many and the confusion prevailing at the grass root levels as to whom to approach and how to derive the benefits of various schemes will continue to play spoilsport and the intended beneficiaries will again be deprived of the facilities and incentives. The National Bank for Agriculture and Rural development needs to be strengthened to play an effective role to coordinate the activities of Financial Institutions and Agencies of various Governments to ensure that the efforts of the Central Government to enhance the agricultural and rural output optimally and without loss of time and money. The need to put in Technology in all the segments of production, storage, transportation and marketing is paramount to rescue the farmers from exploitation, wastage and help distribution of the intended incentives and inputs to all deserving cases. The Insurance of farmers and their products play a vital role and the Government’s supervision in this area can definitely give a morale boost .Recognition of farmer’s problems has been visible in this budget and the readiness of the Government to help them by all means sends a strong signal which should definitely help enhance the income of the farmers and rural people if not double their income in five years. 

Dr T V Gopalakrishnan       

Reform Banks, Give Autonomy

 Reform Banks, Give Autonomy 

Apropos the editorial, When the mighty fall, Reform should arise (ET dated 9/3/16), no doubt, the banking system needs to implement reforms, structurally and functionally, to improve its  Governance Standards, finances and operations and provide support to the economy and not to those who systematically loot and kill the economy in all respects.

That camouflaged bad debts equal to or more than the disclosed bad debts can't be hidden anymore because of the recurring damages they bring to the economy. The Vijay Mallya’s case is only the tip of the Iceberg. 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. Both RBI and banks do not have the autonomy and the Government’s reluctance to keep away from RBI and banks brings only destruction to the financial system and the mighty and their cronies get the money they want. Reforms in fact should start with administration, legal system and Governance standards with more of deeds than words and gradually taken to financial institutions and markets.

Dr T V Gopalakrishnan

( This appeared in Economic Times dt 10/3/16)

Strengthen the Banks

Apropos "Lessons from Gyan Sangam" (March 7), there cannot be two opinions on the need for strong banks in the backdrop of the growing size of India's economy and its international recognition in terms offoreign direct investment flows, non-resident Indians' contribution, its own investments, exports and imports.

This was strongly recommended by the Narasimham Committee in its reports in 1991 and 1998 that got shelved due to bad politics and bad economics. No doubt, forced mergers of banks have caused bad experiences as a result of mixing different cultures and involving huge capital expenditure from the taxpayers' kitty. But they should not come in the way of merging major public sector banks, which are comparatively healthy and strong, instead of combining the weak with strong ones. Besides consolidation of major banks, there is adequate scope for bringing in specialised banks to cater to the growing demands of various segments like agriculture, small and medium enterprises, housing and other retail sectors. The new set of banks licensed by the Reserve Bank of India - payment banks and small banks - can supplement the stronger and specialised banks with emphasis on savings, investments and speedy and safe payments, particularly with a heavy concentration of fast expanding retail segments under Make in India, Start-Up and Digital India. It is time for a new approach to banking. The bad debts crippling the economy must be transferred within a cut-off date to a new escrow account backed by government guarantee.

Dr T V Gopalakrsihnan

(This appeared in Business Standard dated 8/3/07).

Taxi aggregators

The taxi aggregators appear to be organised cheats and do not seem to care the administration and violate the safety needs. Some of them relate to 1) valuables are not safe in the vehicles. By Chance, an item is left out , this is gone for ever. There is no alert system and drivers play honey traps to snatch the valuables. The loss of Phones in the cabs is very common and even if it is immediately brought to drivers' or the Service providers' notice, both refuse to recover and hand over the same to the rightful owners. Even contacting them is often rendered difficult. The way they respond gives an impression that they have a negative credibility on the policing system. They say give a complaint to police just like that. 2) Sharing a taxi with unknown fellows and totally strangers pose a safety threat to passengers particularly old people and ladies. 3) Some of the cab drivers collect toll Charges both ways when they are engaged to go to air port in bangalore where one needs to pay toll charges when coming to City from airport.. There is no way of reporting grievances to any one and even if it is reported nothing happens. 4) They have no standard rates. They fix their own peak hours and charge three to four times of the normal rates. Early morning and evening hours they cannot be relied upon. They have drivers who seem to be goons and their details are not displayed in cabs. Their antecedents do not appear to have been verified by the taxi aggregators. When something is lost both drivers and the taxi aggregators wash off their hands. 

Dr T V Gopalakrishnan

Last straw on Camel's Back

 Last straw on the Camel's back

The approach of the Government to  optimise revenue collection in varied forms including the cess and surcharge as a regular feature and  as a permanent fixture apart from service tax very widely spread (ET Dt 4/3/2016).affects badly the common masses more  than the high net worth individuals and this trend if not curbed early the chances are that the BJP will lose its grip among the middle class in particular. The savings of the community in banks have been on the decline as per the RBI's reports and with the Income tax rates unchanged for the middle class other than the tax relief announced at Rs 5000 instead of Rs 2000 earlier, the middle class gets squeezed perhaps beyond the imagination of the bureaucratic and political minds who frame the policies. Over and above all these, the proposed tax on EPF withdrawals is the last straw on the camel's back  disturbing the equilibrium of the middle class people's finances and mental peace.

T V Gopalakrishnan     

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)