Thursday, September 8, 2016

Black Data: Manipulative and Misguiding

Post independence we have heard almost every day about black money i.e. Money which is in circulation without any record or tax payments. Such money is earned by legal and illegal ways. In recent times we have come across about the Black Data. Data which are not correct or adjusted suitably and published by the government/corporates/Individuals or Business entities to show the achievements or hide wealth. I define such data and statistics as 'Black' as these are also manipulated and unauthentic. Such data are later replaced but the basic purpose of misguiding the public is served. Being short memory, public does not care about the correction at later stage. Black data are also generated by corporates, Institutions, Insurance companies and Banks. The whole purpose of such black data is to cover up the failures or show better performance for time being. In my view this is also unethical and more harmful than black money. Recently the data manipulation was used by stock exchanges to prove the rally in share market and show sharp increase in index by replacing the non performing shares with new better performing shares.

Banks have long been hiding their poor performance under ‘black data’ causing severe damages to the country. Insurance companies mainly life insurance are notoriously manipulating the claim data. Even the GDP growth figures, IIP, Per Capita Income etc. have been adjusted in last five years. Many times the Base is changed for this purpose. Such change in basic parameter depicts rosy picture and misguiding message. Industrial growth and many other national figures are manipulated and fall under black data.

I suggest that black data generation should be controlled and not encouraged.

C P Jain

Monday, June 20, 2016

How Banks Un-ethically benefited with Rate Cut

The Banking system of our country is increasing continuously with the sustainable growth in GDP of the country. Currently the Banks have total lending of almost USD 2 Trillion or Rs. 134000 Billion which is quite significant. Any fraction of amount adjusted or retained in the banking system may look meagre percentage wise but in terms of amount it is abnormally high.

When NaMo govt. came into the power, RBI Lending rate or Repo Rate in technical terms was 8% which is currently reduced to 6.50% after lot of persuasion and requests.

In our our country major players are public sector banks covering about 80% market share and the balance 20% is shared by host of private banks including foreign banks. Currently our banking system consists of 26 public sector banks, 20 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. These banks and institutions handle about $ 2 trillion funds.

After assuming the office by NDA, the interest rates were reduced from 8% to 6.50% by RBI. Indian banks collected huge sum in the form of Jan Dhan banking at dirt cheap cost and FDI also improved during this short tenure of 2 years.  Despite all these positive factors coupled with infusion of about INR 25000 Crs. to the Banks, the interest reduction is not passed fully to the borrowers who were genuine owners of this rate cut. As per the data available, the banks passed the rate cut benefit in the range of 0.60% to 1.00% and retained the remaining benefit with themselves. Thus Banks retained more than INR 100000 crs. or USD 15 billion and improved their own books by hiding the inefficiency.

Had this fund passed on to the borrowers many industries would have survived and grown further. Many small units could have been saved from getting into NPA or atleast this fund could have been properly utilised for the various government schemes for upliftment of poor and needy people. I wonder had this margin not adjusted in the books of the Banks, the NPA reported would have been substantially higher.

Such practice is not ethical and damages the business environment of the country. I am not sure under huge guidance and support, such decisions were taken. On one side NaMo govt. supports growth other side their own establishments are killing the plans. Is n’t it pathetic?

Above calculations may not be accurate but any time these are eye openers. Considering the total lending assets of the Banks of almost $ 2 trillion and RBI cut in the Repo rate in following manner during last two years after assuming the office by NaMo govt., the amount comes at very high level. Irrespective to the accuracy of the amount, the matter is quite serious:
15.1.2015    0.25%  ( In first seven months no rate cut.)
04.03.2015  0.25%
02.06.2015  0.25%
29.9.2015    0.50%
05.4.2016    0.25%

C P Jain

Friday, June 10, 2016


There has been lot of talks on growing NPA cases in the Indian banking industry.  I wish to share my views in regard to this which need to be addressed at the earliest possible .
1. ARCs should be scrapped with immediate effect and an enquiry should be initiated as to how many accounts have been revived or reconstructed by them? ARCs have caused tremendous loss to the economy as their sole purpose was to encash the dying units and avoid the accountability of the banker. No more assignment of Loans to ARCs unless they come out clean. If an unit is acquired by ARC and the same is not revived within 3 years, the same shall be returned back to the Bank. There is no point in paying the management fee to the ARCs for no achievement. There are many other flaws in ARC rules and regulations.
2. Appraisal Systems should be revisited. There are lot of flaws in the current loan appraisal systems. Bankers have only developed the machines to make better presentations not the content.
3.  Forensic audits done in the past and also being done currently are by the agencies/ CA firms appointed by the Bankers themselves. In this situation, the independent views can’t  be accepted. The forensic audits must be carried by the CA Firms/agencies empanelled with SFIO/CBI/EOW or any other government agencies.
4. Accountability of the bankers in case of defaulting accounts should be ensured along with the borrowers.
5. Bad Loan Asset Bank shall be created to handle the distressed assets and sincere efforts should be made to revive the sick units.
6. Sector specific banks are need of the hour. What is logic behind 28 Banks owned by the government competing each other in same market and trying to prove better than others. This way these bankers are creating borrowers’ market and ending in huge losses.
7. Banks should be better used for their infrastructure. They are generating deposits, carrying out business operations and hence why they should be allowed to lend the money they collected against the sovereign guarantee of the GOI. Is it not funny that the banks using the sovereign guarantee of the GOI become owner of the public funds and then deploy on their own.
8. No banker can be expert in lending to all the sectors at a time. There is urgent need of segregating the sectors. It is surprising to see that one banker manages all the sectors on his own and tries to prove himself expert of all.
9. Most of the NPAs are towards the loans sanctioned between 2008-12. What different was done during this period so the loan got bad to this extent.
10. Strategic Debt Restructuring (SDR) policy is good but needs to be revised urgently. The SDR policy should not fix the time of exit with in 18 months. There should be minimum 60 months’ time limit.
11. In case of closed units/sick units, the efforts should be made to revive with the help of employees. Employees shall be offered equity in the units at the cost of promoters to revive the units. This will give employments and ownership.
12. Loan Settlement process should be smooth and short.
13. Credit Information Bureau Ltd. (CIBIL) has helped a lot in grading the borrower but it has also acted as big hurdle for lending. The banks should be flexible enough in regard to CIBIL particularly for NPA cases.
14. Accounts passing through the stress and currently falling under SMA-1 or SMA-2 should be extended immediate support so they can be saved from falling under NPA.
15. So far the consultants are blamed for huge NPA and corruption but the fact is that consultants can help in revival too. Bankers generally lend funds with the support of consultants but settlement or revival are done without any consultant. This is fueling corruption and covering the accountability. If , an advocate can represent the client in court of law why a consultant can not represent to the bankers? A panel of consultant shall be made by RBI to take the services.

Sir there are many such suggestion which need immediate attention to handle the NPA issues. 

C P Jain

Tuesday, April 26, 2016


Currently hottest topic in Banking industry is NPA.  Lot of discussions are going on about why this happened, How this happened and What should be further course of Action.

One thing is crystal clear that the Banking sector in India is passing thru a very crucial phase and need to do a lot to come out of this situation. Another fact is that the amount of such default account is very high. Considering both the facts in  mind let us discuss about the ways to handle this mammoth issue. Typically such accounts are written off and recovery is very less. The route to assign such loans to Asset Reconstruction Companies (ARCs) has proved more disastrous for the Banks and the Economy of the country.

One of the suggestion to handle this chaos is to create a separate bank off such bad accounts so each and every account can be looked into cautiously and revive if possible. Also such Bad Bank will have experts of settlement, Revival and Recovery. Another suggestion almost related to this can be creation of Asset Bank which owns and monetise each and every part of the Asset of NPA accounts like Land, Building, Plant & Machinery , Brands, IPRs, Technology Expertise and above all Human Resource. Such Bank can not only prove a good deal in long run but also help in retaining the expertise and invisible assets. If this idea is really put into place there can be a good possibility of recovering the dues. If such assets are managed by the banks directly in long run they would definitely be able to revive or recover the dues. Asset disposal if done properly and slowly without getting panic, will generate substantial recoveries. It is similar to creating a separate bad bank where the assets can be Parked and serious efforts are made to solve the issues. Government should seriously give thought to this idea, after it is question of public money. To extract better monetisation, separate divisions for visible and non-visible assets can be created. Asset Bank having technology, brands and IPRs can prove to be a great venture in long run if handled properly.

C P Jain, FCA

Wednesday, March 30, 2016


It is very important to understand the current banking industry’s way of working. Major banks in the country are under the ownership of the Government post nationalisation. These are public sector Banks having highest exposure to lending and sourcing. Such Public Sector Banks are around 28 and some financial institutions too which are all placed in a ring of fighting with each other to grab the business. Then there are some private and foreign banks giving tough competition to the PSBs. Like this in a basket of around Rs. 90-100 lac crores there are approx. 60 players who source money by way of deposits and lend to the entrepreneurs.

These 28 PSBs fighting with each other to grab more and more business just to prove oneself better than other. There is severe competition due to continuous flow of money in their kitty by way deposits from public and government. With huge infrastructure, large army of bankers, luxurious and respectable life, these bankers carry huge money power all at the cost of the public money. Although they are trustees of the public and government money but this is only theoretical principle nothing really visible in practice. The fierce competition to prove one up and move further in the career has pushed the banks in bad lending. These bankers lent  money left right and centre without proper analysis and viability checking. Now suddenly all fall down. One of the key reason is that they were not expert enough to lend like this into all sectors. Out of large number of borrowers some about 5-10% defaulted. These bankers were presuming that they are expert in lending to every sector as they understand the sector better than any body else. 

Had there been skill development sector wise and the focus approach, the competition would have been very healthy and such huge loss of billions of rupees could have been avoided. Since all the banks are government organizations the basic structure need to be modified. Lending and sourcing of funds should be segregated. After all the banks are trustee of public money. Even lending can be further divided into two segments I.e. a) Sanctioning & monitoring of loans; and b) disbursement of loans. This way the banks can play active role in sourcing of funds by way of accepting deposits, operating the banking accounts and also in disbursement of funds. The other segment of sanctioning of loans and monitoring may be handled by sector specific arms of the government who will have better focus and knowledge of specific sector. 

The fund allotment to various sectors can be monitored by government under the guidance of experts from various sectors, Government policies, Planning and priorities. This way the banking scenario can not only be changed drastically but we can have strong and vibrant banking system in the country.

CP Jain

Wednesday, March 23, 2016

Most Popular Loan Default: King Fisher Airlines

One of the most popular NPA issue these days is of Kingfisher owned by Mr Vijay Mallya. In fact it has become brand of all NPAs. Whatever be the reason for this episode of NPA but it has touched the general public too who feels that businessmen have cheated the banks and siphoned off money. It may be right  to some extent but in my view not all the NPA are same. KFA issue is different where the funding was done considering the brand valueas major security, which is invisible. Bankers were well aware of the assets they are considering to secure the loan to this company. KFA matter is also victim of the market situation to some extent as all the airlines were in loss when this company got defaulters. Bankers were not worried considering the other flourishing businesses of the group. It was only of late that the bankers felt need to act but by that time it was all over. This episode has left many teachings behind i.e.:

1. Circumstances change every day , if some thing is powerful today it may not remain same tomorrow;

2. Intangible assets are intangible and most risky when in need as these vapour or build as per the situation of the company. It can't be otherwise. I have not seen any incidence where the company is going down but the brand or goodwill is going up. When taking it as security, we think reverse which is not practical;

3. The core principle of the lending should be business viability not the other verticals of the group. If the business is not profitable, be cautious. Other group businesses are going to make the matter complicated when needed. Also, the lending seems to be substantially affected by the political connections otherwise no banker would lend money to stressed account.

4. The monitoring has to be improved. For the large borrowers, even if they are highly reputed, cautious approach should be followed. They may feel offended but money is money. Bankers should not mix the personal relationship with the business. After all it is not your money.

5. Last but not least, recovery actions should be prompt and not delayed otherwise it will be too late to recover money. If lenders are hand in glove with the borrower, who will save the institution. “Jab Manjhi hi Kashti Duboyega, kaun bachayega.”

There should be thorough inquiries in the matter and honest actions should be taken otherwise we will continue to experience many such episodes.

Such cases are being projected as if only one side is in fault and other side is pity who does not know what to do. In my view for quite long time in almost all the parties and functions, the lenders were also participating, they knew the usage of funds, they were aware of the stress in the company and still sanctioning new funds just to keep the books in good shape. There may be various other angles of the case, reasons for entertaining to this extent, loose monitoring, poor appraisal and extra ordinary favour to this group, but it is of no use now. Fact remains that once again lenders have been exposed about their way of working, favouritism, poor knowledge, stubborn approach, egoist attitude and so on. Legal system is again being burdened to act and help the lenders to recover the money. Are not they equally responsible for this situation. They can't hide behind any curtain of ignorance. They deserve equal punishment. After all, they are the trustees of the public money. They are being paid handsomely and they enjoy lot of luxury and privilege.

C P Jain

Saturday, March 12, 2016

Overhauling Public Sector Banks in India

The Government of India is mulling various ideas to clean up the mess in Banking Sector. Although is not new or unique in our country. NPA are prevalent across the world. China is facing huge NPAs, USA  Banks have to write off huge amounts every year for bad accounts. NPAs are integral part of the banking sector. Uniqueness in our country is handling of such issues. Media trial, government actions on wake up, public perception, Legal angles and social factors make bank defaults unique subject in our country. The compulsion of action in such cases once it comes into limelight forces the authorities to act in hasty manner and mostly in wrong and undesirable manner.

Suddenly authorities wake up and decide one fine day to clean up the books. Was it known that books are not clean? If the books are really not clean since decades then give it some time and clean up in such a manner that banks do not loose further. Banks decide to propagate the defaulters, black list them, publish their names and photos, behaving arrogantly with the borrower mainly to small borrower who is genuinely defaulter, Abusing in meetings and threatening the borrower like a street gunda will not help the banks in recovering the dues. Please keep in mind that you, the bankers, are also not clean and honest. Your greed to become the Chairman, Executive Directors, Directors, various promotions were not without any self interest. If Pandora box is opened, these bankers may also face the heat. If recovery methods are not improved, public money will go in drain.

There was a serious talk going on about creating a new Bad Bank to take care of the NPA accounts, but still nothing has come out and may take some more time. Recently, the news is about merging These PSBs into 8-10 Banks. I am strongly against merging in this manner. Reducing the number of PSBs without any change will only be a window dressing. Nothing else will change. We should rather thing on different lines. We desperately need sector specific banks. There is no need to have 10 jack of all banks instead of 10 specialised banks. Sector specific banks will be better equipped with knowledge of market scenario, macro and micro developments, focussed approach and sector specific requirement. Presently we use same stick and parameters for all the sectors which has caused huge damage to banking sector. Also we need Banks for start-ups, Bad accounts, Equity support, long term investments etc. Simply merging or demerging will not at all help.

CP Jain, FCA