Financial Discipline and ethical deficit cannot go together.

Lasting Solution to NPAs

The only solution to Bad loans in banks is to Prevent Formation of bad loans than to find ways and means to recover the bad loans by spending more than the loans themselves involving tax payers’ money. Now what is identified as bad loans needs to be frozen and recovered by enforcing the existing laws of the land without any fear or favor and bringing in the Bankruptcy Code at the earliest. Loans turn bad because of several reasons and the major reason is the non professional approach of banks to favor the unqualified borrowers and encourage them ignoring the basic principles of lending and disciplining them from the day the loans are sanctioned. Instead of the suggested proposal to have a Stressed   Fund by the Ministry of Finance and the RBI,  is it not  ideal to have a Stressed Assets Prevention Fund by levying a penalty both from the erring banks and borrowers minimise generation of bad debts and liquidate the bad debts in case formed by the banks and the borrwers themselves without disturbing the other stakeholderrs?  This fund over a period would be more than the generation of bad loans and would be helpful to liquidate the bad loans without affecting the budgetary resources and depositors’ interests. The solution in the long run should be to discipline the borrowers, educate them to run the business on professional lines with ethics and make the banks also accountable and sensitive to the trusts and responsibilities vested in them. In this regard the practical solution suggested in one of the books Viz Management of Non Performing Loans in Public Sector banks  published by the Indian Institution of Banking and Finance way back in 2004 can bring in discipline among the borrowers and banks as well and find the required funds to liquidate the bad bebts without taxing the tax payers and depositors. The very acceptance of the solution eludes even the debatable stage despite having it been widely circulated among the top bankers , RBI and the Finance Ministry is a mystery.The bad debts accummulate due to ethical deficit among other things  is a fact which cannot be ignored any more  and the solution lies only in effective Governace.    

 Dr T V Gopalakrishnan        

What to expect from the Budget.

Tinkering approach to budget should go. The budget should contain policies to enhance the revenue collection without any leakage, raise funds from market through disinvestment without pricing greedily and incurring the displeasure of investors, ensure to reach the subsidies only to intended beneficiaries, contain fiscal deficit from taxes earned out of growth of the economy taking advantage of reduction in oil and gold prices, removing the flab observed in various segments, enhancing the production and supply without any deficiencies and leakages, improving the data collection on employment, poverty,, inflation, services, etc. The Over all governance standards have not improved is a fact and it needs to be fixed through social audit and public participation. The gap between what we are capable of achieving and what we really achieve needs to be identified and fixed appropriately through budget provisions.The budget should ensure to fix tax evaders by fradulent accounting practices pursued, insisting cash payments without issue of recipts mostly by professionals, brokers traders, business establishments .etc, People should have facility to report suspected tax evasion freely.There are mushroom growth of different types of clubs in and around major cities and they are nothing but illegal establishments to nurtuire black money generation and spread of wealth in a manner not acceptable to the society.  

Dr T V Gopalakrishnan

Have a humane approach to all.

It is really unfortunate that the Bureaucrats have stopped the updation of pension in RBI without any rationale The action on the part of bureaucrats  ignoring the agreement entered into between  the bank and employees association way back in 1990  with the full consent of the Government and also the spirit behind the decisions given by the Supreme Court in the matter of pension in respect of various cases,cannot stand justice and any ethics.  The right to live in dignity after serving an organisation for three or four decades and that too without depending on anybody for financial support by the organisation to provide pension  to its retired officials  is being denied by the Government without any rhyme or reason when the Government preaches welfare for all and equity and justice for all human beings. Taking away the benefits already enjoyed  without caring for the  ever increasing  cost of  living and the old age problems of  hapless senior citizens  has no justification what so ever.  Hope wiser counsel will prevail and pension updation is effected at the earliest. 

Dr T V Gopalakrishnan

Push Financial Inclusion, Fast

Apropos your editorial on Financial Inclusion from RBI (ET dated 31/12/2015), the Mohanti Committee on Financial Inclusion has done its best to make the Financial Inclusion  a reality by bringing families including girl children particularly from the rural and agricultural segment under some institution or other engaged in the field of Finance. The highlight of the report is perhaps the thrust given to link Aadhar Card with the subsidy distribution  through the fast spreading mobile usage with an intention to cut graft, reach of cash subsidy to all without leakage and loss of time.  As rightly observed the approach to   enhance the much needed interconnectedness of popular access to formal Finance with the Institutions and practices relating to the real economy, Land records, agricultural subsidy and the tax treatment of securitization vehicles is really commendable. The coordinated approach from all institutions engaged in Financial Inclusion utilizing the services of Business correspondents along with a thrust to improve Financial Literacy would definitely go a long way in achieving the inclusive growth and improving the rural environment to attract investment, agricultural production and distribution of wealth in an equitable manner. As is said the taste of pudding is in eating the success of Financial Inclusion depends on the implementation of the Committee’s recommendations in letter and spirit  which essentially calls for a mindset to fulfill the aspirations of poor segment of the population.

T V Gopalakrihnan  

(Modified version of this letter is published in ET dated 1/1/2016 )      

Make the Institutions strong Independent and accountable

Apropos your editorial a wake up call for our Political Leaders (ET dated 28/12/2015),

It may be observed that major institutions of the country do not enjoy autonomy is a fact and  unfortunately the Political Masters seldom exhibit  the wisdom to initiate action to  make them strong and accountable.

The need to have a strong healthy, sound and Vibrant financial system to put the economy on the fast growth track is paramount and the fact that the financial system   which is the backbone of the economy has stresses and strains due to poor health of both banks and their borrowers does not augur well for any of the stake holders of the economy. The Reserve Bank as the regulator and supervisor of banks has no full autonomy in practice to effectively control the banks because of Government’s interference on various policy issues and the appointment of Board of directors particularly in Public Sector Banks. Similarly the SEBI which Controls the corporate borrowers has its own limitations to discipline them all, the way the banks and the Reserve Bank desires. The Governance standards in the country by and large are weak and the Institutions which do not enjoy full autonomy have lots of escape routes for being not accountable for any of the lapses seen and felt in the financial system. Since the ultimate sufferers on account of lack of autonomy for these vital Institutions are the economy, the Government, depositors tax payers, banks, large Corporate borrowers and the people at large it is time our political masters realize the seriousness of the issues and provide the much needed legislative and Government support to make the Institutions strong and independent to discharge their allotted functions effectively and make them accountable. The major beneficiary will be the politicians themselves indeed.

T V Gopalakrishnan

Sustianble Finacial Stability is the need of the hour.

The so called financial stability is not that easy to  be achieved as long as the public sector banks continue to slog with the problems of bad debts and the borrowers continue to grapple with the slow growth, lack of investments and evasive ease of doing business.The Indra Dhanush approach to solve the problems of PSBs will not be of any use as long as the borrowers are not allowed to be disciplined both by the banks and RBI  because of direct and indirect interference from the Government  and the cross subsidisation of the banks ' losses by the tax payers and the depositors among the other stake holders exists.. The Government should ensure that the banks are highly professional and their credit portfolios are run strongly with the business and commercial approach and for that RBI should have a free hand..Banks cannot be expected to be run only with the depositors and tax payers support backed by the Governments unlimited guarantee. Their business is lending and  not investing in Government and other safe and unsafe  securities. Investments are part of their commercial approach and the investment climate should be congenial. The Credit market and bond market are weak and with this back ground the expectation of a sustainable Financial stability would be a far cry. The capital market dominated by investments from PSUs,and other institutions also is weak and this also needs a total revamp by attracting maximum retail investors at least a minimum of 51%  of the paid up capital of Listed Companies. The Credit rating of Companies should be done by banks based on their conduct of loan accounts.among other things.  The recycling of funds in banks is weak and unless they are able to have fast churn out of funds which is dependent on the repayments and recoveries of loans, banks cannot be expected to have a healthy balance sheets. The economy can be said to be strong  and fast growing only if its Financial system consisting of markets, institutions and instruments (they bring out in the market for mobilising funds, deploying them and liquidating the instruments freely ) is sound, dynamic, stable and vibrant.  

Dr T V Gopalakrishnan    

(this comment is sent to Business Standard)

Accept the ground reality of Financial Stability

The observation that While bad news about banks can be hidden, bad news about borrowers is visible to all is totally wrong. The bad news of both the banks and the borrowers are hidden by the ingenuity of the accountants and auditors from everybody is the truth as accounts are liberally fudged and balance sheets and Profit and loss accounts are conveniently window dressed to suit the requirements of those who read them except perhaps by the  retail share holderswho lose their investments for ever.What the system permits, follows and practice is accounting for convenience and not for exhibitig the true sate of affairs .Examples are Global Trust Bank and Satyam Computers. There are others like Air India , King Fisher like that. The story is slightly different in PSBs as they enjoy unlimited government guarantee and enjoy the depositors and tax payers support perennially though not out of smpathy but out of inevitable compulsions. Finanscial Stability would be a far cry as long as banks , privilged Corporate borrowers in particular are not disciplined by certain inbuilt mechanism and the accountants and auditors are not made accounatle for all their known lapses in presenting the correct state of affairs.

RBI is also unfortunately helpless in setting right the situation  except perhaps making some noises here and there when the situation is reaching some dangerous levels. 

Dr T V  Gopalakrishnan

(This comment in a modified manner appeared in Business standard dated 25/12/2015)