RBI's recent statement  on customer service in banks  and fleecing them is an eye wash. To day some papers have reported SBI's move to levy Rs 25 for every withdrawal from ATM. Banks ' financial position is very bad and no one knows their true worth. RBI has stopped detailed inspection of banks years back and the Government's interference in banks working has increased without any control. Some Committees appointed to look into  banks working  and suggest improvements  were only to fool the public as no concrete steps seem to have been taken to implement their recommendations.. The losses on account of NPAs cannot be easily recovered unless the banks widen their net to collect levies from all customers particularly deposit customers and small borrowers is the ground reality. This is the easiest way to cover up the losses. Unfortunately the Banks' Boards Bureau is also proving to be another NPA to suit the corporate borrowers who dictate terms to politicians, bureaucrats  and all Institutions which include RBI, Chartered Accountants Association of India and major  PSBs. The Banks' balance sheets and Corporates' balance sheets need to be thoroughly audited by  Specialist Investigating agencies to bring out the truth about their Financial position. More sensitive information is hidden than revealed and the only way is to enhance their bottom lines with easy and unquestionable levies from hapless depositors .   Good to see that Money Life has taken up the issue with all seriousness and is trying to get some justice for innocent depositors with whose money banks do business and enrich the undesirable  and the most undeserving elements in the society.  

Dr T V Gopalakrishnan

(This comment was sent to Money Life in response to an Article that appeared in Money Life dated 5/6/2017).

Make GST the game Changer

Apropos your editorial GST If it were done when it is done (ET dated 22/5/17), the ultimate objective of the GST is  to rationalise the taxes in such a way that the nation as a  whole will have only  one tax which will help to augment the revenues and distribution of wealth in an equitable manner and bring down the inequality of wealth and incomes among all states and the people The success of the GST no doubt depends on its effective implementation with adequate checks and balances to minimise corruption, leakage of collection and efficient and timely distribution of goods and services and the revenues through out the country.The administrative system needs to be made strong and accountable which is possible only if the Government moves ahead with the implementation of the GST with speed with adequate provision for  periodical review of  progress and revision of the rules of the game  in a befitting manner without loss of time and intended objectives.

Dr T V Gopalakrishnan

(this letter appeared in ET dated 23/5/17 with some modification.)

NPA Resolution - the New Ordinance

The present approach announced by the Government empowering more powers to RBI can at best find some solution with all problems to encash the accumulated NPAs. Its success is not guaranteed as the vested interests who have looted the banks systematically will not so easily yield to such pressures and tactics. What the banking system needs is to stop fresh flows of NPAs for which an unbiased approach to discipline the banks and borrowers is a must. No such attempts or intentions are visible in the new ordinance just released. Both stock and flow approach need to be rigorously implemented without any scope for interference from the Government , bureaucrats and politicians.

Dr T V Gopalakrishnan

5/5/17.

Make Capital out of Capital Market. Do not allow Dalal Street go the Wall Street Way

The sensex has crossed 30000 and the undercurrent seems to be very strong to take it further forward. The fundamentals of the economy are on the positive side, but the same cannot be said to be true with the Corporates and the banks as many of their balance sheets are weak and camouflaged.

The capital market which has undergone sea changes under the initiative of SEBI over a period has been unfortunately turning out to be a den for speculation and gambling keeping away the retailers from investing and helping the capital formation very vitally needed for reviving the sagging economy. The financial savings of the households have, of late, been registering a sharp decline and the investments in physical assets have been on the increase contributing nothing to the GDP growth. For want of adequate resources, the development of infrastructure has lagged behind and the confidence in the whole gamut of savings, investment and production has shattered. The household savings in financial assets have come down sharply over a period. Retailers’ investment in capital market is insignificant if not negligible. The trend in resources mobilized over a three year period by the Corporate Sector can be gauged from the following table.
Total Resources mobilized by Corporate Sector                                                    (Amount in Rs crores)              
Year Equity Issues Debt Issues Total Resources
2010-2011 1,14,466 2,28,236 3,42,702
2011-2012 40,729 2,96,868 3,37,597
2012-2013 78,408 3,78,444 4,56,852
2013-2014 73,394 3,18,436 3,91,830
Source: SEBI bulletin May 2014
The capital market which should reflect the strength of the economy in fact reflects predominantly the speculative tendencies based on the sentiments of a few market participants. Unfortunately the FIIS have more say in the capital market than the domestic players and they dictate the terms and conditions. The fundamentals of the economy which should be the yardstick to influence the market have been relegated to the background and the movement of indices is only reflective of movement of inflows of speculative funds of FIIS. The macro economic factors like the fiscal deficit, current account deficit, the GDP growth, inflation, value of the rupee, industrial and agricultural production etc are all weak and by any stretch of imagination one cannot explain  as to how the market indices are getting strong day by day other than by the speculative instincts. No doubt the change of the non performing Government and expectation of high Governance standards from the new set up partly account for rise in index, but it is too early to sit on judgment on Government's performance. This speculative trend seen in the capital market needs to be reversed and this is possible only if domestic institutions and corporates strengthen their resource base by tapping the domestic savings through attractive financial products including equities and bonds.
It is the best opportune moment for the new government to come out with some innovative ideas and facilities to enhance, convert and divert the household savings into investments in capital market. The investments in shares through IPOs have turned out to be a very bad experience for retailers during the last decade because of high and greedy pricing of the issues and they have burnt their fingers forcing them to go out of the market and seeking greener pastures elsewhere. Persisting high inflation has added fuel to fire. Gold and real estate have attracted huge investments over a period depleting the savings in banks and investments all around. The Rajiv Gandhi equity investment scheme introduced by the then Government offering tax exemption up to Rs 50000 investments in equity to attract retailers into the capital market has not gone well with the investors and this needs to be scrapped totally or modified drastically. Expecting people in small cities and suburbs who have absolutely no knowledge of shares and for whom having a bank account itself is a herculean task in these days of banks' insistence of KYC without understanding its' relevance, to invest in equities and that too through a demat account which is compulsory to hold the equity investment is simply unrealistic and if not totally utopian. When the Financial Inclusion particularly banking inclusion has not taken off very well, the expectation of the Government to attract savers particularly those from middle income and lower income class to equity market is unintelligible and unrealistic.    

To make the capital market a place for large savings, SEBI has to necessarily ensure that the share of retailers get augmented considerably keeping an obligatory minimum of 25% of the paid up capital of all listed companies. The companies that have exceeded this minimum and have been having more than 50% should get some special recognition from the Government and incentives. Till the Companies reach 25% of retail ownership, there should not be any STT for first time buyers of shares of these companies. To avoid undue speculation in the market, the SEBI can think of introducing loyalty bonus for retention of shares by individuals for more than a prescribed minimum period. STT can also be suitably modified to prevent speculation both on buying and selling. STT can be different for FIIS and domestic players in the market. Similarly STT can also vary for institutions and individuals. Different slabs can also be thought of for levying STT on purchases and sales. With proper modification and intelligent marketing, this can emerge as a regulatory tool to attract small savers to capital market, contain speculation in the market, mobilize maximum savings towards capital formation and enhance optimum revenues to the Government.

Corporates declaring dividends and bonus shares at regular intervals need to be incentivized. Similarly Corporates raising resources from rural and semi urban areas can also be given some tax concessions or some incentives. This will give a boost to tap household savings from these places. Domestic financial and other institutions investing in capital market and raising resources from capital market have to be facilitated with suitable products and processes   to get in and get out of the market and there should be in place effective regulation and supervision with adequate checks and balances to prevent frauds and irregularities.

The capital market is the best source of raising resources for the Government at this critical juncture and the money locked in the form of gold, real estate, hard cash and otherwise also can be easily tapped   with proper reforms in the form of policies, products and processes. Readiness on the part of the authorities is all that matters. A healthy and vibrant capital market supported by sound and proactive administration, regulation and supervision can change the economy into a most promising and prosperous one fulfilling the aspirations of the  Government and the people of this great nation.

Dr T.V.Gopalakrishnan                                                                                                                         (Views are personal)

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