Free the PSBs From the Govt's clutches and make them healthy, professional and commercial.

The need to give a kick start to the economy by making the PSBs healthy and highly professional in their very business of raising deposits and lending money is paramount and very urgent and any delay in reviving the banks can badly affect their very survival in business leave alone supporting the economy which is otherwise stagnating for want of timely and cheap credit. The banks have to shift all their very badly identified and un provided for NPAs as on 31^st March 2017 to an escrow account  to be maintained by the Government and they need to be very intensively followed up with all legal and other measures to recover the dues at the earliest..  

Since the PSBs are becoming weak by day due to mismanagement of advances portfolio resulting in the accumulation of  non performing advances and stoppage of  of expansion of fresh credit for productive purposes, there is an equally and urgent need to make them highly professional and commercial  in their management of credit and risk to ensure that the fresh formation of NPAs does not occur any more and if at all they recur, they need to be liquidated and taken care of by banks and bad borrowers themselves through some self correcting mechanism in place. A small levy of penalty based on banks and borrowers’ conduct of loan accounts will do the trick. It is rather unfortunate to observe that though the cost of funds for banks has come down considerably thanks to sudden spurt in deposits at low interest rates after demonetization of high denomination notes, banks are finding it extremely difficult to cut the lending rates and find avenues of credit expansion thereby creating a serious uneconomical mismatch of assets and liabilities. The solution for slow pick up of credit lies in changing the business model and to realign the assets side removing the NPAs from the balance sheets and build up of new short term credit and less of infrastructure loans. Long term bonds  which can  take care of infrastructure finance can also rescue both the banks and the Government to find resources. If these bonds are made tax free, public subscription is also guaranteed without any limit.

What is needed now is that the Government should keep away from banks, make the Banks Boards Bureau more accountable in its expected role of individual bank’s performance, make the RBI to intensify its regulation and supervision over formation of bad debts and improve the quality of loan assets. After all  what the economy needs is  improvement in its overall performance in terms of better macro economic fundamentals like investment, production, consumption savings, employment and equitable distribution of wealth and for that  a strong banking system is sine qua non.    

Dr T V Gopalakrishnan

Make Banks healthy and Professional

Make banks healthy and professional

The banks particularly the PSBs are becoming weak by day due to mismanagement of advances portfolio resulting in the accumulation of  non performing advances and stoppage of  of expansion of fresh credit for productive purposes.Though the cost of funds  for banks has of late, come down considerably and deposits have also gone up despite low interest rate and unimaginably deteriorating customer service, banks are finding it extremely difficult to cut  the lending rates and find avenues of credit expansion thereby creating a serious  mismatch of assets and liabilities. The deposits have gone up substantially thanks to demonetization of high denomination notes of Rs 500 and Rs 1000 but  the credit pick up has not been commensurate thereby threatening the very survival of banks in business. The solution for slow pick up of credit  lies in changing the business model and to realign the assets side removing the NPAS from the balance sheets and build up of new short term credit and less of infrastructure loans. The present burden of high level of NPAs  other than  substandard advances which are on the borderline of bad debts needs to be  shifted from the balance sheet creating an escrow account elsewhere supported by the Government bonds exclusively created for the purpose and subscribed by Institutions and Public.. As and when recoveries happen with a vigorous enforcement of remedial measures, these bonds can be liquidated. The need for a healthy and highly professional banking is paramount to give a boost to the economy and the NPAs should not come in the way of banks to expand their business.

The prevention of formation of NPAs is equally important to keep the banks  healthy and active in their basic business of raising deposits and advances. Professional approach of banks  to their business is the need of the hour to keep them surviving and supporting the economy which is otherwise stagnating for want of timely and cheap credit. 

Dr T V Gopalakrishnan          

If there is a will there is a way to come out of the NPA menace

The Indian banks particularly Public sector banks are always shielded from disaster and liquidation as they are regular sources of finance and incomes for many vested interests. The beneficiaries are the Government, Banks' Boards of directors, Politicians, Bureaucrats, Big Industrial  Borrowers, Lawyers and Chartered accountants and the losers are hapless depositors, helpless retail borrowers and innocent tax payers. Even the general customers of banks have to bear the brunt  through enhanced service charges unknowingly for all the inefficiencies of banks and the wrong decisions of the powers that control these banks.

The Government needs financial support to take care of its own deficit financing, political ambitions and promises to extend perennial financial support to non viable and uneconomical projects under the guise of Priority Sector lending and provide dependable source of finance to keep the major infrastructure projects started with or without professionals and definitely without any accountability for the end use of the resources obtained from banks. The amounts written off by banks and the costs incurred to  cover up the  failures of banks by forced mergers and acquisitions using Public sector banks have never been questioned and are in fact  all  accepted  as normal business practices. The  write ups on Banks' weaknesses and risks they carry only help a small segment of the population to understand the mismanagement but they are also equally  helpless except perhaps in  writing rejoinders and submitting representations through Change.org in. The joke that if one has a gun he can rob a bank but if one has a bank he can rob the entire society without being noticed or questined is literally being experienced by all is not a joke in reality. From April 1st onwards, all stake holders of banks and the economy will be fleeced mercilessly thanks to the inefficienices of banks in running their busnesses professionally and commercially.     

There are no serious attempts to prevent formation of NPAs in banks by disciplining the Bankers, Borrowers, Accountants, Lawyers and Regulators is a fact and definitely not intended in any way is also a ground reality. Volumes have been written on the resolution of NPAs in banks for decades and the amounts being written off as bad debts and the costs incurred in maintaining NPAs, discussing the problems in what ever forum available and attracting the attention of every one who matter in the country are something terrifying and mind boggling. Unfortunately, the politicians , the bureaucrats, the regulators, the bad borrowers and the banks know very well as to how to perennially  ensure flow of  NPAs in banks without thinking of any lasting solution is what one wonders. This is the art of mismanagement at the cost of tax payers and the depositors. The so called effective Governance continues to be evasive and public bear the brunt as if it is their fait accompli.

Dr T V Gopalakrishnan

Stock and flow approach to tackle NPA menace in Banks.

Stock and flow approach to tackle NPA menace

Banks NPA menace is perennial and needs to be contained on a war footing to make the banks strong, attract investments and take the economy forward on a strong track.  This calls for a two pronged approach. The Staggering NPA stocks need to be taken off the balance sheet of banks as on 31 March 2017 and transferred to an Escrow account to be maintained by RBI with bank wise details and all possible steps to recover through sale of assets, recoveries through legal and other modes available involving even venture capital with incentives to take over such assets need to be seriously and expeditiously considered and implemented.  Since formation of NPAs is a natural process in banking because of the very nature of business involving money and human resources, fresh flows of NPAs need to be minimized through introduction of intensive professionalism in the conduct of credit portfolio of banks and discipline, and penalty for the erring borrowers scientifically with effective and unbiased governance standards of regulation and supervision. Subsidizing the banks’ losses on account of NPAs by squeezing tax payers, depositors and other stake holders of banks and the economy should come to an end once for all and the Banks Board Bureau has to be judged on its own performance in eradicating this disease of cancer from banks and the borrowers. The need to keep away politicians and bureaucrats from Banks is sine qua non to make the banks professional and accountable. 

Dr T V Gopalakrishnan

Very appropriate Monetary Policy from RBI

The RBI's  monetary policy(announced on 8/2/16)stance change from being accommodative to neutral is perhaps a message to the Government  and banks that more fiscal  and administrative  measures are needed to kickstart the economy particularly after the stagnation  witnessed thereon since demonetisation of high denomination notes.The banks are flooded with funds and the cost of funds has come down but the transmission of the earlier reduction of policy rates ie 1.75% effected by the RBI   has only been partial leaving little room for RBI to warrant another reduction. But for the benign inflation, all other macro and micro economic factors have not been  favourable and the external economic conditions also do not seem to be very conducive for change in policy rates is a fact which cannot be overlooked by the Monetary Policy Committee.Further, the banks' own  financial position is also not very comfortable with ever increasing non performing loans adding to the cost of funds and threatening to the financial stability. The poor demand for bank loans also  reflects on the lower demands on products affecting investment, production and recycling of funds.In this background, the present approach of the RBI is very appropriate and is a food for serious thought for all policy makers to revive the economy and banks as well to perform.RBI may have to wait for a few quarters more to have a feel of the impact of the recent budgetary measures on the economy in general and industrial production in particullar to consider policy rates changes. 

Dr T V Gopalakrishnan

    

The Banks need to be highly professional

Apropos your editorial Banking on good faith (The Hindu dated 27/1/2017), the credibility of borrowers from PSBs in particular has been fast eroding thanks to the accumulation of bad debts and inability of the enforcement mechanism to recover the banks’ dues. The reasons for such a state of affairs are not far to seek. The failure of professionalism in PSB’s boards in running the banks commercially, interference of politicians and bureaucrats in the banks’ functioning, laxity of supervision of banks by the Reserve Bank, lack of involvement by the Chambers of commerce and Industry in disciplining their members in the proper conduct of banks loans which are nothing but depositors’ money  and tax payers’ ignorance that they are subsidizing the huge bad debts and consequent losses and inability to voice their concerns have all contributed in weakening the banks and the erosion of trust in the entire governance system. In this background, the arrests by the Central Bureau of Investigation of former IDBI officials and some of the borrowed Company’s officials are well intended and have definitely sent a warning signal both to the erring officials of banks and bad borrowers as well. However, this cannot be considered as adequate unless and until the key figure behind the corporate Mr Vijay Mallya is booked and made accountable for all the  banks dues and they are fully recovered. Of course, this sort of severe action should not make bankers wary of extending credit as the economy is very badly in need of huge investments for its all round growth and the banks are already flooded with funds due to the demonetization effect. Banks’ business is to lend and expand economy and this has to go on professionally covering the risks commercially and profitably benefiting all the stake holders of the economy Viz; the Government, the banks, the depositors, tax payers, borrowers and public at large.  

 Dr T V Gopalakrishnan      

Sathya meva Jayathe. Yatha Raja Thatha Praja.

Promises and practices do not match. If all the promises of the politicians had been implemented, the country would have reached welfare status decades back. Even after seven decades of independence politicians seek votes on the promise of removal of poverty,prevention of corruption , generation of black money and provision of essentials including toilets. food,shelter and clothes. People are realising this but they have no choice but to vote for some better crooks (with lesser evils)among the contestants as the country is destined to suffer perennially under Democracy.Loot is the criterion pursued by  majority of politiicans and who loot comparatively less is given a chance to rule. Politicians have plundered the economy and some politicians have looted for generations together.  Bureaucracy helps, plans and share the loot. In this background, whether Budget comes before or after elections, it does not matter much to common man as his status as common man ever remains the same under all sorts of elected governments. Of course, there is a welcome change if it can be said so that now he is also allowed to loot in his own way and that is reflected in the society in different forms ie, corruption black money, greed in the pricing of goods and services,etc.No accountability is seen anywhere. Policemen loot, Judiciary loot, bankers loot, traders loot, brokers loot, borrowers loot and why not politicians and common man? People have come to know these and they are also joining the band wagon.A small percentage is forced to follow virtue and they suffer.But the number is dwindling as indicated in the number of those who file tax returns and who pay taxes. Only 2.4 million out of 125 crores of people have declared income above Rs 10 lakhs is a proof that pursuing honesty is not a virtue and is not expected unless some wants to be in a fools paradise. Delhi alone should account for this figure if honesty is practised by the rulers, authorities and people at large. No shortage for slogans. They are plenty to satisfy the masses. Satyameva jayathe. Yatha raja thatha Praja. 

Dr T V Gopalakrishnan

This comment is given in Times of India against the Article budget goodies cannot sway away indian voters appeared on 15/1/17).