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

INDIAN BANKING SECTOR: ISSUES & SUGGESTIONS IN REGARD TO STRESSED ACCOUNTS

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