Recapitalization of banks

While recapitalization is essential to ensure banks survival in the backdrop of accumulated Non performing assets and poor credit growth,the Governance efficiency in banks independent of the Governments' interference is equally paramount to sustain the banking in their banking business. While the efforts to recover the bad debts should continue without any relaxation, at the same time the banks should  put all efforts to prevent generation of fresh Non performing Advances and save themselves from getting extinct from the  business through loots of the borrowers. The seeds of NPAs are always sown during credit expansion and the recapitalization approach prompt banks  to expand credit and they have to be extremely careful in selecting the borrowers and area of credit expansion.Prevention is always preferable than curing the disease.Banks need to be very wise and highly professional in safeguarding  their business of acceptance of deposits for the purpose of lending and not losing the depositors' money through the art of lending to bad borrowers. It is high time the banks realize that the depositors are becoming wise and they chose their banks based on their health, financial soundness, standards of customer service, regulatory compliance and above all efficiency and independence of management in running the banks.

Dr T V Gopalakrishnan

Make Public Sector Banks Perform and Accountable.

Unless  and until the Public Sector Banks perform, the economy cannot  be expected to perform the way the PM , the IMF and the whole world expect in these days of reform , perform and transform and echoed eloquently in the recently held World Economic Form at Davos. No doubt the banks need recapitalization, but more than that what they need is a professional approach supported by an independent thinking and acting Board, Management and staff and is made accountable to the Regulator first and through the Regulator to the parliament. The expectations from the Boards Bureau were very high and unfortunately along with banks, the Bureau also turned Non Performing resulting in the far below  performance of the economy and its over all potential. The Trust in banks is fast eroding  thanks to their  staggering non performing advances,non accountability of the Boards and the Regulator and lack of independence,functional autonomy and the bail in proposal mooted in the proposed FRDI bill to bail out bad borrowers and bad banks using depositors money.The deposit growth in banks is stagnating and the customer service is deteriorating beyond imagination. Capital formation through household savings is declining due to erroneous tax policies and incentives to save by all means including high cost of living. Periodical recapitalization of banks and tolerance of accumulation of bad loans and write off of loans have been acting as moral hazard and both the banks and borrowers develop a tendency to relax and exploit .The need for banks to perform is paramount and it requires development of bond market to support infrastructure development, capital market reforms to enable banks to resort to take out finance to supplement their own resources and administrative changes to make banks accountable for all their lapses in deposit front, advances area and provision of  Customer service to expand Customer base and retain them.    

Dr T V Gopalakrishnan     

Do not make RBI the Scapegoat

This approach to demand RBI Rs 43000 crores towards Bank recapitalisation as NPAs of banks swelled under RBI watch shows the arrogance of the Govt and admission of its own failure to make the banks  perform as there was no conducive economic environment for any one to perform in the economy as revealed in the continuous falling in GDP over the past few quarters.RBI no doubt failed to successfully implement the demonetisation scheme and also failed to make the banks accountable for the accumulation of  bad loans perhaps by cautioning appropriately the Govt for its undue interference in RBI's own functioning and that of the Public sector banks and taking away the independence and professionalism of both RBI and PSBs. Instead of finding fault with the Finance Ministry and the bureaucrats for their failure in creating a conducive economic environment with their own economic and administrative policies, running after RBI to pass on the surpluses ignoring the Central Banks'own prudential policies and historic approach so far pursued keeping the interest of the macro economy and in safeguarding the value of the rupee amidst the dynamics seen in and around the world only shows the Govt in poor light. RBI has always been a strong supporter of the Government and has to be so statutorily as per its set up but it has to be allowed its own independence and freedom to deliver in the interests of the economy and the Government in power. 

The Governments' approach seems to be augmenting revenue by all means and what for these revenues are meant is not understood. The prices of gas, petrol and diesel and almost all commodities have increased and the tax policies have not given any sort of relief to people including pensioners and  senior citizens even without any pension benefits. 

Dr T V Gopalakrishnan

(This commend  was given in response to an article Bank Recapitalisation:Government may turn to RBI for Rs 43000 crore as bad loans swelled under their watch  that appeared in FE dated 2/11/17)

A lasting solution to arrest and prevent the formation of NPAs in banks.Better late than never.

The banks in general and PSBs in particular are in the business of looting depositors and tax payers money in a systematic manner and the politicians and,bureaucrats become very handy to enable the loot. Even Mr Atal Bihari Vajpayee the Former Prime Minister has openly stated in the late 1990s that NPAs are nothing but  a loot This is known to all but as long as the depositors,tax payers among others  can bear the burden silently, why the loot cannot go on is the approach  pursued all these years and the periodical bail out of banks are resorted to when the situation is going beyond control and the cracks are felt in the economic growth The solution lies in disciplining the banks' management and the borrowers and for that the Regulator has to be totally independent and made efficient to deal with them unbiasedly without any political and Government interference A lasting solution to contain the formation of NPAs was suggested in  the year 2004 in a book Management of NPAs in PSBs published by Indian Institute of Banking and Finance but it was conveniently ignored   despite the fact that the book was based on  Ph d thesis and carried a foreword from none other than the former RBI Governor and former Chairman Prime Ministers Economic Advisory Council Dr C Rangarajan. Unfortunately, intentionally or unintentionally  the suggestion was not even considered to be debated openly, leave alone  considered for implementation on a trial basis  although it received lots of appreciation and was recommended for fair trial by the examiners of the thesis in public interest.The solution was very simple and pragmatic and had it been implemented then, the NPA accumulation could have been greatly contained and managed without resorting to bail out of banks with tax payers money.The book offered a solution to discipline the borrowers and the banks in their management of loans taking into consideration the ups and downs in the economy due to genuine reasons of slow down if any based on political economic social and technological changes beyond the control of banks and borrowers.The other stakeholders of the economy Viz the Government, shareholders of banks, the investors and the public at large could have been the major beneficiaries and the banking system would have become strong and the twin balance sheet problem of banks  and corporates would not have been an issue as of today. It could have been a win win situation for all.

 This book it seems is available even now in amazon .com

Dr T V Gopalakrishnan

(This comment in a modified manner has appeared in Indian Express dated 31/10/2017 against the article Recapitalisation of banks)

    

 Camouflaging NPAs and inflating the profits is very common in all banks and this was the reason  the Global Trust Bank had to close down and had to be merged with Oriental Bank of commerce in the year 2004. The banks auditors and management are hand in glove with each other in window dressing of banks balance sheets and this seldom gets detected or if get noticed get ignored often. The stakeholders have absolutely no clue of what happens and RBI's findings seldom get reported or made transparent. What has happened in Axis Bank may be true for almost all the banks and prudence demands that all banks' financial position with RBI's divergence if any should be made transparent for the benefit of all stakeholders. Besides, how the banks fix lending rates to various corporate borrowers , retail borrowers and to what extent the policy rates have been actually transmitted into the final lending rates of banks also should be made transparent for the benefit of investors. To what  extent the lending rates if NPAs are maintained at a reasonable level can be reduced also should be indicated in banks balance sheets as and when published.

        

      Dr T V Gopalakrishnan

      ( This comment was given in Money Life against the article Axis Bank tumbles over 9% as asset quality worsens dated 18/10/2017).    

Make banks the performing assets.

The best and workable plan to produce results and to put back  the economy  on the revival track is to free the  public sector banks from the clutches of the Government and the bureaucrats. Recognise the fact that these  banks are being killed by the Government and the bad corporate Borrowers and they are the worst non performing assets in the economy as of today. They even seem to have forgotten their basic functions of mobilisation of deposits and deployment of the  funds  for the growth of the economy through making loans and investments for productive purposes.They drive away the customers with poor service and exorbitant service charges. Added to this, the tax on the interest income keep  away the small savers and they turn to other modes of savings encouraging even the informal and undesirable economic activities having undesirable social implications Also make  RBI independent in letter and spirit and make it accountable to the parliament..Without the support of sound banking and healthy financial system the economy cannot grow is a reality and it would be wise for the Government to realise this and act accordingly.

Dr T V Gopalakrishnan 

(This comment is in  response to an article Working on a plan to rebuild the capacity of the banking sector that appeared in Business line dated 13/10/17).

Understand the importance of RBI and allow it to function in the interests of the economy.

RBI balance sheet cannot be equated with the PSU's balance sheet and the Government cannot expect RBI to go on declaring dividends ignoring the responsibilities of RBI to manage the risks the Country can face both domestically and internationally. RBI's capital has remained unchanged at Rs 5 crores since its inception in 1935 and based on this capital the dividend paid to the government is of very high order.RBI being a very prudent conservative and responsible organisation has managed its affairs extremely well and has been transfering maximum surpluses to the Government and at the same time building up reserves to meet all contingencies. The approach of the Government to snatch away the resrves is akin to selling off family silver either out of greed or because of its arrogance to dictate to a well run institution  and weaken it or beause of its inefficiencies to manage its own fiscal. In any case, this requires a public debate factoring into the practices followed by the well run central banks of different countries. RBI unlike other corporates is definitely not run on commercial considerations is what the Government should realise and RBI is always backing the Government for all its socio economic policies with its highly professionlistic approach keeping utmost honesty , integrity and comepetence in delivering its assigned functions with or without autonomy. RBI has earned its International status and recognition inspite of the intervention from the Government on its day to day functions speaks volumes about its professionalism in pursuing very sound monetary policies and keeping the financial system of the country so far healthy and risks free. It has also ensured to keep its own finances strong is a master stroke and the Government should feel comfortable that its central bank is economically sound and keeps the country's economy stable and steady with all  its limitations on the role of the Government. The Government cannot ignore the fact that unlike other central banks of different countries RBI plays a unique role in supporting the developmental functions of the Government and tolerates all the political gimmicks played  using the banking system  ignoring the basic functions of banks ie acceptance of deposits and lending for the expansion of the economy and its all round growth. Dr T V Gopalakrishnan (This comment is in response to the Editorial Divided on Dividends that apperaed on the Hindu Business Line dated 8/917).