tag:blogger.com,1999:blog-73267626562445165312024-03-14T14:37:23.878+05:30TruueC P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.comBlogger43125tag:blogger.com,1999:blog-7326762656244516531.post-37487257660213871672016-09-08T11:33:00.001+05:302016-09-08T11:33:36.438+05:30Black Data: Manipulative and Misguiding <div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Arial, sans-serif;">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.</span><span style="font-family: Arial, sans-serif;"><br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><span style="background: white;"><o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: Arial, sans-serif;">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<span class="apple-converted-space">. </span>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.<o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, sans-serif;"><br />
<span style="background: white;">I suggest that black data generation should be
controlled and not encouraged.</span></span><span style="font-family: "Arial",sans-serif;"><o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, sans-serif;"><span style="background: white;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Arial, sans-serif;"><span style="background: white;">C P Jain</span></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-79233264839148163012016-06-20T15:50:00.001+05:302016-06-20T15:50:42.491+05:30How Banks Un-ethically benefited with Rate Cut<div dir="ltr" style="text-align: left;" trbidi="on">
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">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. <o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<br /></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">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. <o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<br /></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">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. <o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">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. <o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">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. <o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<br /></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">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?<o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">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:<o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">15.1.2015 0.25% ( In first seven months no rate cut.)<o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">04.03.2015 0.25%<o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">02.06.2015 0.25%<o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">29.9.2015 0.50%<o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">05.4.2016 0.25%<o:p></o:p></span></div>
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<br />
<div style="background: white; line-height: 13.5pt; margin-bottom: .0001pt; margin: 0cm;">
<span style="color: #333333; font-family: "Century Gothic",sans-serif; mso-bidi-font-family: Arial;">C P Jain<o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-27317441137756107862016-06-10T15:05:00.001+05:302016-06-10T15:06:05.572+05:30INDIAN BANKING SECTOR: ISSUES & SUGGESTIONS IN REGARD TO STRESSED ACCOUNTS<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="font-family: "century gothic" , sans-serif;">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 .</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; text-align: justify; text-indent: -18pt;">1. </span><span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span lang="EN-US" style="text-align: justify; text-indent: -18pt;"><span style="font-stretch: normal;"><span style="font-family: "century gothic" , sans-serif;">3. </span></span><span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span lang="EN-US" style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span lang="EN-US" style="text-align: justify; text-indent: -18pt;"><span style="font-stretch: normal;"><span style="font-family: "century gothic" , sans-serif;">4. </span></span></span><span lang="EN-US" style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">Accountability
of the bankers in case of defaulting accounts should be ensured along with the
borrowers.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">5. Bad Loan
Asset Bank shall be created to handle the distressed assets and sincere efforts
should be made to revive the sick units.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">12. Loan
Settlement process should be smooth and short.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify; text-indent: -18pt;">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.</span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify;"><br /></span></div>
<div class="MsoNormal" style="text-align: left; text-indent: 0px;">
<span style="font-family: "century gothic" , sans-serif; font-size: 12pt; text-align: justify;">Sir there are many such suggestion which need immediate attention to
handle the NPA issues. </span></div>
<div class="MsoNormal" style="margin-left: 18pt; text-align: justify;">
<span lang="EN-US" style="font-family: "century gothic" , sans-serif; font-size: 12.0pt;"><br /></span></div>
<div class="MsoNormal" style="margin-left: 18pt; text-align: justify;">
<span lang="EN-US" style="font-family: "century gothic" , sans-serif; font-size: 12.0pt;">C P Jain</span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-90362320918527099712016-04-26T17:50:00.002+05:302016-04-26T17:50:21.898+05:30BAD LOAN ASSET BANK<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">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. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">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. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">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.<o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">C
P Jain, FCA<o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-76238220714974671812016-03-30T15:42:00.001+05:302016-03-30T15:42:17.906+05:30SECTOR SPECIFIC BANKS ; NEED OF THE HOUR IN INDIA<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">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. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">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.<span class="apple-converted-space"> <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><span class="apple-converted-space"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">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.<span class="apple-converted-space"> <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><span class="apple-converted-space"><br /></span></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">The
fund allotment to various sectors can be monitored by government under the
guidance of experts from various sectors, Government policies, Planning and
priorities.<span class="apple-converted-space"> </span>This way the banking
scenario can not only be changed drastically but we can have strong and vibrant
banking system in the country.</span><o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">CP Jain</span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-58942016868448460152016-03-23T18:39:00.003+05:302016-03-23T18:39:37.975+05:30Most Popular Loan Default: King Fisher Airlines<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Century Gothic', sans-serif;">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.:</span></div>
<div class="MsoNormal" style="text-align: justify;">
</div>
<div style="text-align: justify;">
<span style="font-family: Century Gothic, sans-serif;"><br /></span></div>
<span style="font-family: 'Century Gothic', sans-serif;">
<span style="background: white;"><span style="text-align: start;">1.
Circumstances change every day , if some thing is powerful today it may not
remain same tomorrow;</span><o:p></o:p></span></span><br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: 'Century Gothic', sans-serif;"><span style="background: white;"><span style="text-align: start;"><br /></span></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Century Gothic', sans-serif;">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;</span><o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Century Gothic', sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Century Gothic', sans-serif;">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.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Century Gothic', sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Century Gothic', sans-serif;">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.</span>
Bankers should not mix the personal relationship with the business. After all
it is not your money. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: 'Century Gothic', sans-serif;"><br />
<span style="background: white;"><span style="text-align: start;">5. Last
but not least, recovery actions should be prompt and not delayed otherwise it
will be too late to recover money.<span class="apple-converted-space"> </span>If
lenders are hand in glove with the borrower, who will save the institution. <b>“Jab
Manjhi hi Kashti Duboyega, kaun bachayega.” </b><o:p></o:p></span></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: 'Century Gothic', sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: 'Century Gothic', sans-serif;">There should be thorough inquiries in the
matter and honest actions should be taken otherwise we will continue to
experience many such episodes. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Century Gothic', sans-serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Century Gothic', sans-serif;">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.<o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="background: white; font-family: 'Century Gothic', sans-serif;">C P Jain<o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-80943064745648003452016-03-12T11:38:00.000+05:302016-03-12T11:38:09.269+05:30Overhauling Public Sector Banks in India<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
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.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
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. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
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.<o:p></o:p></div>
<br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
CP Jain, FCA <o:p></o:p></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-79247691519415367242016-03-08T16:27:00.003+05:302016-03-08T16:27:53.358+05:30Public Sector Banks in India : On the Cross Roads<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;">PSBs in India are passing through a very typical situation right now. On one side
their health is serious due to mounting NPAs and on the other side they are
instructed by their guardians and owners to look sexy and beautiful
irrespective to the fact that this will not be possible even with heaviest make
up. In the race they were made to believe that whatever needed will be given to
them but they should look beautiful at any cost. Their clothes had torn off
badly , spines are broken and blood haemoglobin is too low. Cholesterol in the
form of bad management and NPAs have chocked the heart arteries. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;">In this situation, they have been asked to do whatever needed
but look clean. What they can do at this stage where even they don’t know where
they are standing today. Diagnosis is not perfect, they dig into one issue and
end up to ten other issues. Budget of 2016-17 was expected to take care of
their misdeeds and infuse huge sums but this too seems distant possibilities. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;">It is known to all now that despite rebutting by them, all
the PSU banks are passing through a very bad phase and pulling on through
window dressing in one way or the other. This window dressing or make-up has
been earlier allowed by the same authorities who now forcing banks to show the
real face without make up. what has prompted the authorities to suddenly pull
the plug? Was it more advisable to go in phases ? what was hurry? Why suddenly
a patient walking with the help of crutches is asked to throw away and walk without any
support and show as if they can run too. This may create huge image loss to the
Indian banks and also the global rating. Banks if show the real picture will
not be able to withstand amongst global banks. The repercussion may be too
dangerous for international business., <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;">It can not be disputed that banks should clean up the books
but suddenly doing so can put them from crutches to stretcher. It needs to be
done in phases so the damage can be controlled., Also there is dire need of
skill development, internal controls, systems and procedures, improved methods
of appraisal etc which will take their own time. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;">The number of PSU banks in India are too many which is
creating competition and thus run for business . Some of the banks are looking
healthy just because huge government funds are lying with them. It does not
mean they are healthy. If we look at such banks after removing the government
business and funds, their health is more alarming. Banking system should be overhauled.
Merging of banks and reducing to maximum
five banks will lead to better results. In fact we need PSU Banks <b>sector specific</b> which can better
understand the business and help country to grow. <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;">CP Jain<o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-7656720836001146592016-02-22T15:00:00.002+05:302016-02-24T10:46:30.553+05:30BAD BANK: Will It Work in India ?<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;">India, our country, is currently having NPA/Bad loans of more
than 4.50 lac Crs. Which is only a guess. It may go much higher if really the
books are cleaned by the Banks. To combat this situation of reporting the
truth, there are various options flying in the year. Some of the popular
suggestions to the GOI by the high profile finance advisors are :<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 33.0pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">To avoid to clean the books
completely in one go. It may damage the books of the banks to such an extent
that they will not be able to stand again;<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 33.0pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">b)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">To sale the assets to ARCs at liberal
terms so at least some assets can be shown in the books;<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 33.0pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">c)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">To create a separate bank called Bad
Bank for NPA assets and transfer all such loan accounts to this bank;<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 33.0pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">d)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">To liberal the parameters of
classifying an account NPA for some time so the economy can be revived;<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span>
<span style="font-size: 12.0pt; line-height: 115%;">In past lot
of loan accounts have been assigned to Asset Reconstruction Companies (ARCs)
but this was done mainly to:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 33.0pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">a)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">Avoid the accountability and save the
skin of the lenders;<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 33.0pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">b)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">Benefit the selected cartels; or<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: 33.0pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">c)<span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span style="font-size: 12.0pt; line-height: 115%;">To show the books much better than
reality.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span>
<span style="font-size: 12.0pt; line-height: 115%;">Hence the purpose was not served as far as the banking
institution or the borrower is concerned. In this situation, it would be
difficult for the lending banks to convince about the option of assigning more
and more loan accounts to ARCs. One day it may become a major finance scam of
the country.</span><span style="font-size: 12pt; line-height: 115%;">Another option of getting liberal or slow in cleaning the
books may not be official but practical decision which will be never known to
the public. Banks never accepted that their books are not showing true picture.
The loan accounts were window dressed and to the maximum possible extent
reported as performing asset. I surprise why this word of “cleaning of Books”
came into news suddenly. Does it mean that the PSU Banks now admit that so far
the books were not clean?</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;"><br /></span>
<span style="font-size: 12.0pt; line-height: 115%;">So, the only option left to exercise is the creation of a
special bank to handle NPAs/bad loans of all the PSU banks. This bank is being
called as ‘Bad Bank” which will be flooded with all the NPAs . The concept of
bad bank is not new globally but in India this can be a new experiment. RBI
Governor has expressed doubts about the efficacy of such a bank. In my view the
establishment of Bad Bank can be a good idea if handled properly. Just imagine
a bank with all the stressed accounts having expert team of managing , reviving
or recovering the loans. Such bank can help a lot in revival of the NPA
accounts and save the livelihood of millions of people. Recovery should not be
the only focus otherwise it would become another ground of corruption. Such
banks should also have experts from all the sectors, positive attitude people
with a zeal to help in revival of the bad loan accounts. One of the major
reason of getting loans bad is slow decision making, lack of field expertise,
highest level of EGO, Greed, Corruption, Political nexus etc…etc… However, creation
of such bank should not be taken as shield for fixing accountability of the
lenders. <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 12.0pt; line-height: 115%;">I strongly believe that there is no harm in experimenting
this idea of creating a Bad Bank. I am sure GOI will serious give thought to
this and save the public money going into drains. Also it may save the jobs of
millions of poor people. <o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-36068592032931218972016-02-22T14:59:00.002+05:302016-02-22T14:59:37.705+05:30Poor Loosing PSU Banks: Way Forward (Part-II)<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Gadugi",sans-serif;">In
continuity of my earlier post, I would like to take the discussion further in
the matter of ongoing mayhem in the public sector banks. In the third quarter
Banks are estimated to show the losses upto Rs. 25K crs. This is after
registering incomes from various verticals. Although the banks have supported
Indian economy to grow and sustain post-independence, but this can’t be the
argument to give clean chit to the bankers. Bankers should be made accountable
for such huge amount of losses. By the way this is not the end, rather it is
beginning of swachhta abhiyan and we may see more such losses in next 3-4
quarters at least. The accountability
issue is a very serious which if taken seriously, it will affect the confidence
of the bankers to do the business. This does not mean that bankers should be
allowed to go scot free. If the lending in last decade mainly from 2008-2012 is
investigated properly, it may open Pandora box. Bankers have allowed themselves to be affected
by the worms of greed, corruption, political pressures and power hunger. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Gadugi",sans-serif;">Bankers,
mainly at higher level, always behave like bureaucrats. They are not easily
accessible, never entertain small
entrepreneur and never be on ground. They rarely try to listen form the
outsiders (It hurts their ego in most of the cases) and information sharing is
almost nil. Market reference from the closed door can never be authenticated.
It is beyond their level to seek information from the unorganised sources.
Bankers depend on a very selective source of information which may be biased
too. The appraisal system is poor and outdated, lack of training, frequent
transfers and promotions, lack of accountability policies and lot many other
factors have contributed to these huge losses. Bankers in the race of
promotions take short term view of serious issues of the clients and pass on
the bucks to the incoming officer. It is almost impossible to catch hold a
banker once he reaches to GM level (even DGM level in many cases). <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Gadugi",sans-serif;">In
this situation when the house of lenders is not in order, what is the logic of
giving them more and more public money. The impact of losses in the banks is on
other PSUs also like LIC who have invested (by choice or pressure whatever)
heavily into these banks. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Gadugi",sans-serif;">There
is urgent need to relook in the manner of lending by the PSU banks otherwise,
hard earned public money will continue to go in drain and we will be cursing
the borrowers only. We should find out :<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Gadugi",sans-serif; mso-bidi-font-family: Gadugi; mso-fareast-font-family: Gadugi;"> a)<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "Gadugi",sans-serif;">How
much money has GOI given to the bankers so far to keep them going after
nationalisation?<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Gadugi",sans-serif; mso-bidi-font-family: Gadugi; mso-fareast-font-family: Gadugi;"> b)<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "Gadugi",sans-serif;">How
much NPA has been written off by all the PSU banks so far? <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Gadugi",sans-serif; mso-bidi-font-family: Gadugi; mso-fareast-font-family: Gadugi;"> c)<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "Gadugi",sans-serif;">How
many senior officers have been made accountable for these losses?<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Gadugi",sans-serif; mso-bidi-font-family: Gadugi; mso-fareast-font-family: Gadugi;"> d)<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "Gadugi",sans-serif;">How
many NPA accounts have been revived by ARCs in last 10 years, if not then who
is benefited ultimately?<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Gadugi",sans-serif; mso-bidi-font-family: Gadugi; mso-fareast-font-family: Gadugi;"> e)<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "Gadugi",sans-serif;">How
banks can assure that no new loans will get bad ? If they can not guarantee why
they need money just to throw in drainage?<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-family: "Gadugi",sans-serif; mso-bidi-font-family: Gadugi; mso-fareast-font-family: Gadugi;"> f)<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "Gadugi",sans-serif;">Whether
banks have improved their capabilities now, if so what steps they have taken?<o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "Gadugi",sans-serif;">More
in next post.<o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-84211185911822062132016-02-22T14:54:00.003+05:302016-02-22T14:54:58.351+05:30Poor Losing PSU Banks: Way Forward<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 10.5pt; line-height: 115%;">In my one of the post shared on 6th November, 2015 , I had expressed
my views about the banking industry registering huge losses in the coming
months. This has been proved right currently when almost all the banks
including big banks like SBI, PNB , BOB etc. are reporting huge losses in the
third quarter of the current financial year. Bigger the Bank, higher the loss. In my view all the Public sector banks taken
together will report loss of around Rs. 25000 crores in this quarter. Real
picture will be cleared by the end of current financial year after closing of
the books. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 10.5pt; line-height: 115%;">Although this is not a new development to the people
connecting to Indian finance world that the banks were reeling under huge
losses, what is really commendable is the steps taken by the new Government led
by Mr. Modi and RBI Governor to clean up the books of the banks and bring them
to the reality. The banks may have to bear further hits in coming some more
quarters. It is always good to have clean books showing real picture, what is
unfortunate is the way this was pulled on for such a long time. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 10.5pt; line-height: 115%;">Ultimately PSU banks will be adversely affected and so their
capabilities too. A lot has been said about the reasons for this situation but
to move forward, the GOI should take drastic painful steps which can not only
help them in reviving but also ensure that no such repetition happens in at
least near future. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-size: 10.5pt; line-height: 115%;">In my view there is no need to get panic but the need of the
hour is to take 360 degree view of the situation. The banks will blame the
errant borrowers , poor economic situation and everybody else except themselves
this situation. They will continue to remain holy cow cursing the borrowers,
politicians etc. There is need of honest introspection too as the bankers are
equally responsible for this situation. I don’t mean that borrowers are not
responsible. I would like to share my views in regard to the future corrective
action plan :</span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: 0px;">
<span style="text-align: left; text-indent: -18pt;"><span style="font-size: 14px; font-stretch: normal; line-height: 16.1px;">1. </span><span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-size: 10.5pt; line-height: 115%; text-align: left; text-indent: -18pt;">GOI should not infuse a single penny
anymore as this will further drain out. The problem is not in economy or
borrower or banker to some extent, it is more with the appraisal system,
knowledge built up and attitude of the bankers;</span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span style="font-size: 10.5pt; line-height: 115%;"> 2. Bankers have to get themselves well
equipped in appraisal of loans, shed their highest level of EGO and ready to listen the others; <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span style="font-size: 14px; font-stretch: normal; line-height: 16.1px;"> 3. </span><span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span><!--[endif]--><span style="font-size: 10.5pt; line-height: 115%;">Till they are well equipped,
accountability fixed and customer friendly, lending should be fully controlled;<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span style="font-size: 10.5pt; line-height: 115%;"> 4. Banks are in business of lending and
accepting deposits but they are asset heavy carrying huge assets on their
shoulders which may be disposed off so that the liquidity is retained; <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span style="font-size: 10.5pt; line-height: 115%;"> 5. Loss making banks may be re-privatised
again as this is the harsh truth that lending is not the baby of bureaucrats
too;<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span style="font-size: 10.5pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">6 6. </span><span style="font-size: 10.5pt; line-height: 115%;">Private players shall not be given
any assets of the bank as these have been created by hard earned public money
but the business of lending may be definitely outsourced; </span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span style="font-size: 10.5pt; line-height: 115%;"> 7. </span><span style="font-size: 10.5pt; line-height: 115%; text-indent: -18pt;"><span style="font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><span style="font-size: 10.5pt; line-height: 115%; text-indent: -18pt;">Banks should gradually exit from the
direct lending as this has caused huge
holes in the pocket.</span></div>
<br />
<div class="MsoNormal">
<span style="font-size: 10.5pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal">
<span style="font-size: 10.5pt; line-height: 115%;">More views
in next post.<o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-60403859298468449162016-02-22T14:51:00.004+05:302016-02-22T14:51:24.435+05:30Forensic Audit of Stressed Accounts: Why So Late?<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
Forensic audit is one of the tool
with the lenders to use against the borrower once the account gets into the
default territory. This is one of the most sought after procedural tool with
the lenders which is more blunt than sharp in the current banking procedural
system. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
Forensic audit is an assignment
given to the trained auditors to opine if anything was intentional, fraudulent,
manipulative or illegal which resulted into the stress of the account. This is
also required to decide if the account can be restructured and revive. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
The decision of assigning the
forensic audit itself sends shivers to the borrower irrespective to the fact if
there is anything wrong or unjustifiable. The signal of appointing forensic
auditor divides the borrower and lender because the borrower feels offensive .
The mistrust leads to the further deterioration in relationship . In many cases
borrower resists such audits as there is definitely something uncomfortable in
the past business operations. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Forensic audit is based on various
segments of business unit covering all the sectors be it internal or external,
visible and non-visible, accounting and non-accounting, numerical and
non-numerical. It is in fact much beyond the normal audit without any specific
time frame and year limitation. Forensic audit can result into serious expose
of the borrower and make him liable for further actions but this is one sided
as it focuses only on the borrower entity and its promoters. <o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Although the need of forensic audit can not be
discarded, the real issues lies in the timings of the audit . By the time
account becomes stressed, there are least options to help in revival. The
account may have come into stress due to various reasons and fraud can be one
of the key factor, but there can not be one side to blame for NPA. I am sure
lenders also carry out their own investigation to fix the accountability of the
concerned officers who may have favoured the borrower in illegal manner. Such
investigations are never known to the outsiders as there are lot of favouritism
for the employees responsible for such situations. No fraud can take place
unless there is some involvement from both the sides. Even ignoring or avoiding
the actions is also part of support. <o:p></o:p></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Forensic audit or Special
investigative audits may lead to find the wrongdoings but very difficult to
recover the money as these actions are taken too late to cover up the past
deeds. Best solution is that lenders should get the forensic audit or Special
investigative audit regularly even if the accounts are good. This can be a
precautionary tool to help in containing the account to move to NPA. It is
beyond my understanding why such tools can not be used as a regular precaution
method may be in different name. There should be a threshold limit beyond which
such tools should be used compulsorily. <o:p></o:p></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-42499648995102211182016-02-22T14:47:00.000+05:302016-02-22T14:47:05.904+05:30NPA Treatment by Banks : Cleaning of Books<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: Arial, sans-serif;">This fourth
and last quarter of financial year 2015-16 is going to be one of the most
crucial period for Indian banking industry due to clear cut instructions by the
authorities to clean up the balance sheet. Indian banks are passing through a
very sensitive phase of cleaning the balance sheet. Restructuring or Revival
has become too difficult after scrapping of the CDR Cell. Banks are now free to
take decisions individually nd individualistic now. Every bank has to take the
call independently. Post scrapping of CDR mechanism, the joint decision making
process is done away. In this situation the decision will be based on the
security and realisable value held by each lender separately. Every bank will
take its own call irrespective to the situation of other banks' decision. Revival
efforts to save the company from going into liquidation will not be considered
at all.<span class="apple-converted-space"> </span>This situation will be
most impractical for the stake holders particularly employees and unsecured
creditors. Legal battles will take their own course and ultimately good units
will also die.<span class="apple-converted-space"> <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="font-family: Arial, sans-serif;"><br />
<span style="background: white;">It seems the banks particularly public sector banks
will be tough enough to clear the balance sheet without giving proper thoughts
to revive. This may result into more and more unemployment in ge country. Also
small entrepreneurs who are passing through the stress will not be able to
sustain such situation and large corporates will be benefited more and more.<span class="apple-converted-space"> The situation is really very alarming and needs
immediate review by all the concerned parties. </span></span><br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><span style="background: white;"><o:p></o:p></span></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: Arial, sans-serif;">If NaMo
government is pushing for a special institution to handle stress accounts,
proper mechanism to keep stressed companies live is more desirable. Bad bank (
bank for stressed and default borrowers) is a good idea provided such decisions
are taken on urgent basis as Indian banks are sitting on a time bomb of huge
NPA accounts.<span class="apple-converted-space"> Good to support new start
ups but equally important to hold on the existing organizations. Millions of
people have already lost jobs in last two years, non action may lead to further
unemployment.</span></span><span lang="EN-US" style="font-family: "Arial",sans-serif;"><o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-50891260574287697892016-02-22T14:45:00.003+05:302016-02-22T14:45:59.389+05:30LOAN APPRAISAL AND SANCTION SYSTEM <div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">In our country one of the major reason for high
defaults in borrowing is “faulty appraisal and sanction system”. Although other
reasons may be lack of monitoring, faulty disbursements, lack lustre legal
process, laid back approach of lenders etc., but as mentioned by me earlier,
the beginning of any exposure is mainly happens at the stage of approval of the
loans. In my view the system of sanctioning needs to be overhauled urgently if
lenders are rally serious in improving the asset quality, else the mounting NPA
can have tremendous growth in years to come. Some of the fault lines are :<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: 54.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">1.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">As noticed many times the lending is always
dominated by the personal factors of sanctioning authority, relationship with
the borrowers, connections of the borrowers, track record of the borrowers in
the past and asset coverage. Many of the parameters are compromised during the
process. There should be honest appraisal irrespective to the factors mentioned
above.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 54.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span lang="EN-US" style="font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">2.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal; line-height: normal;"> </span></span><!--[endif]--><span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">Focus on proposed business is not as desired
instead the security and net worth ( on papers) are given more weight age while
deciding the lending. No lender can jump into disposal of security to recover
money instead of improving the lending quality. Further the valuations are
always disputed and managed depending upon the purpose. Valuation of a security
for borrowing is always exaggerated whereas the valuation of same property by
Same valuers at the time of disposal goes down substantially. I don't
understand how can such valuers continue to associate with the lenders for
long. There should be strict appraisal norms on the proposed business /
requirement instead of security side.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 54.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<!--[if !supportLists]--><span class="apple-converted-space"><span lang="EN-US" style="font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">3.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span></span><!--[endif]--><span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">Exaggerated
Future projections are another key factors in faulty appraisal. Every
projections are made so rosy as if every thing in this world will change and no
challenge will be faced in future. The tendency to see the rosy picture by
lenders pose threat to themselves only .<span class="apple-converted-space"> The
approach towards projections should be more conservative. Infact, to convince
the higher authorities, the projections are made so good that all the
parameters are immediately met up and there remains no negativity about the
future of the business. How it is possible that no challenge in future is taken
care in the business plan. It seems that current appraisal system is based on
paper horses where every thing mentioned on paper is considered as final for
decision making. <o:p></o:p></span></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 54.0pt; mso-add-space: auto; text-align: justify;">
<br /></div>
<br />
<div class="MsoListParagraphCxSpLast" style="margin-left: 54.0pt; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<!--[if !supportLists]--><span class="apple-converted-space"><span lang="EN-US" style="font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">4.<span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span></span><!--[endif]--><span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">Administrative
set up like hierarchy of officers,<span class="apple-converted-space"> low
commitment to the PSU employers, slow legal process, Delayed decisions also
affect the quality of loans. Ego of the officers also plays major role in
lending. Once the ego is satisfied, the decision making turns into emotional
decisions instead of professional view. <o:p></o:p></span></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-3115936654366365042016-02-22T14:44:00.005+05:302016-02-22T14:44:39.220+05:30Due diligence and Credit appraisal system of banks and financial institutions in India<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: Verdana, sans-serif; font-size: 10pt; line-height: 115%;">Lot of views are
expressed on mounting NPAs in the country in last 3 years. We blame lenders for
their poor monitoring system or borrowers for their malpractices. Have we ever
thought where else can be a problem? Monitoring and investigations come at
later stage when the loan is already sanctioned and disbursed. In fact we can narrate
the whole process of financing as under:<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="background: white; font-family: Verdana, sans-serif; font-size: 10pt; line-height: 115%;">a) submission of Loan proposal;</span><span lang="EN-US" style="font-family: Verdana, sans-serif; font-size: 10pt; line-height: 115%;"><br />
<span style="background: white;">b) appraisal and sanction of loans;</span><br />
<span style="background: white;">c) disbursement of loans;</span><br />
<span style="background: white;">d) monitoring and evaluating the loans already
given;</span><br />
<span style="background: white;">e) recovery of the loans along with interest;</span><br />
<span style="background: white;">f) investigations, settlement, restructuring, if
not repaid in scheduled time; and</span><br />
<span style="background: white;">g) concluding the chapter or litigations.<span class="apple-converted-space"> </span></span><br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><span style="background: white;"><o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: Verdana, sans-serif; font-size: 10pt; line-height: 115%;">Generally we
discuss about the issue from monitoring onwards by which time, money is already
disbursed and lenders are left with no option but to submerge with the plans of
the borrower.</span><span lang="EN-US" style="font-family: Verdana, sans-serif; font-size: 10pt; line-height: 115%;"><br />
<!--[if !supportLineBreakNewLine]--><br />
<!--[endif]--><span style="background: white;"><o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: Verdana, sans-serif; font-size: 10pt; line-height: 115%;">In fact, the most
crucial decision is to accept the proposal of the borrower and disburse the
same in planned way. Generally the proposal when submitted contains lot of
information, analysis and viability support. It mostly has rosy picture
prepared solely to impress the lenders to lend money and earn a lot with fully
secured module. There may be some hidden or unwritten agenda which also push to
lend money. The proposal travels to various layers and moves upward with strong
recommendations by each concerned authority at every level. It means every mid
size proposal pass through the hawk eyes of many experienced bankers. Not only
this it is also scanned by outside agencies like rating agencies, TEV studies,
marketing reports, government statistics etc. Then how come there is so much
jump in defaults.<span class="apple-converted-space"> <o:p></o:p></span></span></div>
<span lang="EN-US" style="font-family: Verdana, sans-serif; font-size: 10pt; line-height: 115%;"><br /></span>
<div style="text-align: justify;">
<span lang="EN-US" style="font-family: Verdana, sans-serif; font-size: 10pt; line-height: 115%;">Real fault lies with the appraisal system of the
proposal received for financing. <span style="background: white;">Indian banks have age old system where each
application is submitted fitted with lot of ratio analysis and lending methods.
These formats are analysed by the people working on that who are also given
instructions verbally in most of the cases as to how it should be directed. This is where the cases are manipulated.<span class="apple-converted-space"> </span>Due diligence and analysis system in
our country is quite old. Except the up gradation in mode of presentation (from
typewriting to computerized), the core is not yet changed. The system of due
diligence and appraisal need lot of amendments mainly to sync with the economy,
macro and micro factors, government policies and the expertise of the borrower.
Current system is based on the security, reputation or net worth of the
promoter and general business trend. There is assumption that if something
going good for long it will remain as it is. No provision for the sudden </span></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-68759272143703303052016-02-22T14:43:00.001+05:302016-02-22T14:43:04.588+05:30Why the Genuine Stressed Account should be Punished by Higher ROI & Penalties?<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">My views may not
be acceptable to banking people but I fail to understand why a stressed account
(not in position to stand properly & needing immediate support) should be
punished in this manner. We have noticed that the moment a borrower defaults,
he is classified to Special Mention Account (SMA)-1, then SMA-2 and finally
NPA. This is the stage where such units who have paid huge amount of interest
and other income (LC/BG charges, Processing fees and other banking charges) during
their long good days to their lenders. Is it not unfair on the part of lenders
to instantly punish them with penal interests, higher rate of interest, higher
margins on working capital funds, higher charges towards various inspections,
audits, due-diligence and so on? Is it not criminal to push the stressed
accounts further into stress from where they can’t even think of coming out?<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">I don’t agree
that defaulting accounts should be treated with iron hands with the sole
objective of recovery and killing them. This way even recovery will be
adversely affected. In many cases we have noticed that the stake holders are
not the borrower only. There are large number of other stake holders like employees,
laborers, suppliers, small agencies providing various services etc. All these
stake holders are the worst hit by the improper actions of the lenders. These
poor service providers should be given due priority over the secured lenders. Such
attitude or policy for the established long standing clients is not justified
as these banks are mainly surviving on the small depositors’ money. Secured
lenders should not behave in such manner that interest of all other stake
holders get into flames.<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">In good times if
a borrower had been cash cow, it should not be slaughtered so mercilessly
immediately after finding difficulty in giving milk. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">There should be
proper mechanism of dealing with the
stressed accounts. Theoretically, lot of steps have been taken by the
authorities but mostly are either impractical or diverted for personal
benefits. The concept of <b>Asset
Reconstruction Companies</b> has also miserably failed due to the
commercialization and huge entry
barrier. <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">There should be
detailed study as to how the lenders behaved post stress, how many units were
revived and how the hand holding happened. At least for the well established
borrowers, the rehabilitation and concessions should be automatically extended.
In recent past millions of people have been thrown out of job due to
mishandling of stressed/defaulting accounts by the lenders in our country.
Similarly millions of other people who were involved indirectly by providing
goods and services to these units have suffered badly. <o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-31101670918789465082016-02-22T14:41:00.002+05:302016-02-22T14:41:40.949+05:30Handling of Defaulting / Stressed Accounts by Lenders: Serious Faults<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">Stressed
accounts who have defaulted are given almost same treatment irrespective of the
issues involved. It is just like giving electric shock of same volts and
frequency to every patient visiting mental hospital without judging the level
of disease , intensity and age. Here is how they are treated and the effect
thereof:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<span lang="EN-US"><span style="font-stretch: normal;"> 1. </span><span style="font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><b><span lang="EN-US">Stage I -Lenders:</span></b><span lang="EN-US"> Flooding of notices related
to irregularity, warnings, threatening.
The moment panic button of stress is pressed lenders run for recovering
their money forgetting that they are major financial partners. To prove their
capability, lenders flood the borrower lot many letters, notices, warnings etc.
Instead they should try to find the reason behind this.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<b><span lang="EN-US">Effect of the Action:</span></b><span lang="EN-US"> The borrower first tries to convince the lenders
humbly. Then becomes defensive and in final stage after convincing self that
now he may be thrown out of the business, and loose every penny , starts
avoiding the lenders. Lenders start calling them so often that the borrower
gets scared and resorts to avoid.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<b><span lang="EN-US"> 2. Stage II-Lenders :</span></b><span lang="EN-US"> Further pressurize
the borrower by giving warnings, threatening and levying penalties, higher rate
of interests and non cooperation with the borrower. Lenders Never discuss why it happened, only concern
is pay money even if you lost every thing. They never show any interest in
knowing the facts. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify;">
<b><span lang="EN-US">Effect of Action:</span></b><span lang="EN-US"> The borrower starts hiding
the facts as he feels , lenders are not interested in helping to revive but only in their money.
He starts avoiding the lenders, and simultaneously try to safeguard his own
interest. Thus the unit becomes orphan and gradually moved towards sinking. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -18.0pt;">
<span lang="EN-US"> 3. <b>Legal Actions by Lenders: </b></span><span lang="EN-US">Still lenders feel that their actions of recovery were right. They
further burden him with legal notices. Here, the lenders feels that if they
threaten the borrower with stringent actions, money will come. They forget,
this theory is suicidal and will result in huge losses but the lenders in the
race of proving themselves honest and shrewd (which is very rare) they virtually
kill all the hopes of revival. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="text-align: justify;">
<b><span lang="EN-US">Effect of Action:</span></b><span lang="EN-US"> Gradually the issue between lender and borrower turns into lawyer
and lawyer. Result can be immediately expected as two lawyers are more
interested in winning the fight not in win-win situation.<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -18.0pt;">
<span lang="EN-US"> 4. <b>Settlement, write-off and
provisioning by Lenders: </b></span><span lang="EN-US">Lenders by this
time believe that the borrower is cheater, mafia, dishonest, criminal, non
professional and so on. He has siphoned off money and now enjoying life . Also
that their seniors or predecessor were not
capable enough and they did mistake. So the lending institution has to suffer
the loss. They have tried their best and nothing can be done. <o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle">
<b><span lang="EN-US">Effect of Action</span></b><span lang="EN-US">: Borrower and Lenders
settle the account on the basis of the security available as the business by
now is dead. In most cases Lenders loose money. </span></div>
<div class="MsoListParagraphCxSpMiddle">
<span lang="EN-US">5.</span><span lang="EN-US" style="text-indent: -18pt;"><span style="font-size: xx-small;"> </span><b>Conclusion:</b></span><span lang="EN-US" style="text-indent: -18pt;"> Finally the fight between
layers does not lead anywhere and behind the curtain, negotiation starts to
settle the dues and disputes. No body wins and poor stake holders loose
heavily.</span></div>
<div class="MsoListParagraphCxSpMiddle">
<span lang="EN-US" style="text-align: justify;"><br /></span></div>
<div class="MsoListParagraphCxSpMiddle">
<span lang="EN-US" style="text-align: justify;">In my view this set trend of handling the
account is absolutely ridiculous as it does not help any one. Lenders and
borrowers behave differently depending
on the loan amount, security pledged and
mistakes done in handling the accounts. </span><span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%; text-align: justify;">An urgent attention is required to look into the
strategy and methods of handling the defaulting /stressed accounts,
particularly at the initial stage. The action should be to help in bringing
back the stressed accounts to normal and revive instead of just killing to
recover the money.</span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">On one side the borrower is in problem .<span class="apple-converted-space"> </span>The strategy of pushing the borrower
to corner with sole objective of recovery is not only dangerous but pathetic
too. How can an unit where the major financing partner is the bank suddenly
become untouchable. Sometime we feel pity of such policy. Pushing, punishing,
criticising , reprimanding the borrower is in no case going to serve the
purpose. This strategy is no where can be termed as intelligent. Do we punish
our body when it is getting in stress? Do we punish our kids when they do not
perform as per our wish or they fail in something? Even in private sector
whenever some borrower gets into stress the lender tries to save him so the
money can be recovered.<span class="apple-converted-space"> </span></span><span lang="EN-US" style="font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br />
<span style="background: white;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><span style="background: white;">Current situation of NPA in banks in our country
is mainly due to this reason where no
Banker could think other way of handling the stressed accounts. Mistrust
between the lender and borrower causes the maximum loss and that too to the
lender.<span class="apple-converted-space"> </span>By punishing the borrower
or trying to Finnish him or throwing in dust may give some satisfaction of
revenge but not money. <o:p></o:p></span></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-23899626724789496032016-02-19T17:24:00.002+05:302016-02-19T17:24:30.546+05:30NPA: How to Turn Failure into Success<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<span lang="EN-US" style="color: #454545; font-family: "Verdana",sans-serif; font-size: 12.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">It is not a welcome
situation to turn into NPA where you default in all the commitments and face
the legal issues. At stake is the complete career, wealth and reputation of the
borrowers. In a situation of stress or default, there would be very few options
left to move forward and that too at very dear cost. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<span lang="EN-US" style="color: #454545; font-family: "Verdana",sans-serif; font-size: 12.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">It is not easy to survive
once you default in making payments. I fact, this is the beginning of the dark
future ahead where your capabilities, achievements are put to question. No one
believes that once you were the achiever, fighter, survivor and visionary. A
single situation washes out the image built up in decades. In most of the cases
the borrower surrenders and starts withdrawing himself from the stage. Instead
of focusing on business he moves towards legal and finance angles. It is
necessary too but the thought process should not be fully concentrated on
these. One must not forget that it is the business which is real domain of the
borrower which need to sharpen again. It is only the business which can bring
back the lost shine. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<span lang="EN-US" style="color: #454545; font-family: "Verdana",sans-serif; font-size: 12.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">The speed with which the
situation deteriorates and actions are initiated against the borrowers, it
becomes imperative to face and fight with full force. Equally important is the
zeal to bounce back. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<span lang="EN-US" style="color: #454545; font-family: "Verdana",sans-serif; font-size: 12.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">I wish to share my views
how this situation can be turned into opportunity. A situation of stress can be
really turned into a lifetime opportunity if properly handled. The accounts
become NPA and the credibility of the borrower is in negative zone. What we
forget is the fact that the borrower knows his Business very well and has
climbed to the top due to his expertise, hard work and vision. Only certain
decisions went wrong and he fell down. Since he had the guts to climb on top ,
means he is expert, hard working and visionary. This can not be debated unless
the success was with manipulation so or other objectionable methods. May be
certain decisions went wrong or mismanaged the business or overconfidence or
may be certain factors beyond his control resulted into this situation. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<br /></div>
<br />
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<span lang="EN-US" style="color: #454545; font-family: "Verdana",sans-serif; font-size: 12.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">But, in new phase,
if opportunity is given again, he is not going to repeat the same mistakes.
Also, he will work with more concentration and hard work as he has seen the
life nearing to death. Without any emotions to the failed business if he
decides to restart from scratch and rebuild., believe me, it would not take
even 25% of the time invested in building up earlier. This is because the entrepreneur
has learned a lot in stress. He would be more successful. Particularly
first generation entrepreneurs have better chance to rebuild. <o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-51114212182822462222016-02-19T17:18:00.001+05:302016-02-19T17:18:19.014+05:30Upcoming NPA Scenario: Are Banks going to be Hit Harder again?<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span class="yiv8484683318s1"><span lang="EN-US" style="color: #454545; font-family: "Arial",sans-serif;">This is the question which
banking / lenders segment asking itself. This is the question which has very
simple answer but very few would admit in public. Bankers want to live in dream
still and not accept the factual position. <o:p></o:p></span></span></div>
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<br /></div>
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span class="yiv8484683318s1"><span lang="EN-US" style="color: #454545; font-family: "Arial",sans-serif;">Most of the loans getting NPA currently since last 4 years were advanced
during the period from 2008 to 2011 to boost the economy or whatever other
compulsions including corruption. These
loans were defaulted during 2012-14 and then restructured under CDR mechanism. Most
of the CDR cases have got failed due to various reasons discussed in my various
posts. Hence these advances are now going to be a fit case for second
restructuring or settlement. Since April, 2015, CDR mechanism has been scrapped
for the reasons better known to the bankers only. Infact, CDR mechanism was invented to
facilitate smooth restructuring but probably the smoothness has cost them
dearly or there is no consensus. Whatever be the reason, now there is no CDR
mechanism and hence, bankers/lenders have to take the call jointly or
severally. So the cover under which the loans were reported as restructured or standard
has torn off completely. As per rough
estimates more than Rs. 6.00 lac crores worth loans are on the verge of getting
NPA in the near term which will have no cover or excuse for reporting as standard.
Bankers will have no choice but to make provision for them. <o:p></o:p></span></span></div>
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<br /></div>
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span class="yiv8484683318s1"><span lang="EN-US" style="color: #454545; font-family: "Arial",sans-serif;">90% CDR have failed due to
wrong restructuring and hence now no one can stop them from reporting as NPA .
This is the reason that NPA will increase substantially during the current year.</span></span><span class="yiv8484683318apple-converted-space"><span lang="EN-US" style="color: #454545; font-family: "Arial",sans-serif;"> </span></span><span lang="EN-US" style="color: #454545; font-family: "Arial",sans-serif;"><o:p></o:p></span></div>
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<br /></div>
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span class="yiv8484683318s1"><span lang="EN-US" style="color: #454545; font-family: "Arial",sans-serif;">Further, due to long
recession in the country, fund raising options through equity market may not be
easy. Cost escalation due to over leverage of the Balance Sheet is further
going to make life difficult. <o:p></o:p></span></span></div>
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<br /></div>
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span class="yiv8484683318s1"><span lang="EN-US" style="color: #454545; font-family: "Arial",sans-serif;">As per the latest data
released by the Government agencies, NPA has gone down in first half but this
is one of the cruel joke. NPA can’t be reported properly every quarter, real
provisioning is done only at the end of the year and hence this can’t be the
reality. The mindset of misreporting of NPA or showing the real facts has not
yet developed in our country and hence the figures give misleading conclusions.
<o:p></o:p></span></span></div>
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<br /></div>
<br />
<div class="yiv8484683318p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span class="yiv8484683318s1"><span lang="EN-US" style="color: #454545; font-family: "Arial",sans-serif;">It is becoming very
difficult for the bankers to avoid NPA reporting and poor economic situation of
the country may make it more challenging. Dull equity market and weak rupee may
stay for some more time causing further NPAs in the banking system.<o:p></o:p></span></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-51834331276536270582016-02-19T17:16:00.001+05:302016-02-19T17:16:23.783+05:30Challenges in Running a NPA unit<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<span lang="EN-US" style="color: #454545; font-size: 12.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">It is a very tough job to revive
an unit once it falls into the trap of Stress. Financially, such units become
NPA and the owners are classified as defaulters in the CIBIL record. Ultimately
it has very few avenues open for raising finance . Thus few hopes of
revival amid severe challenges from all the sides. These few hopes need lot of
hard work, honesty, patience, focused approach and tough decisions if the unit has to see itself
revived. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<span lang="EN-US" style="color: #454545; font-size: 12.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">An Stressed/NPA unit has typical
characteristic of exhausted options for
raising finance, huge losses, small and
semi-expert management team, low credibility with the suppliers, ongoing legal
issues with the lenders, high cost of business operations due to liquidity crunch
coupled with long overdue statutory liabilities and labour dues. Overall the
life of a stressed unit becomes so tough that for every step there are end
number of challenges . <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt;">
<br /></div>
<div class="MsoNormal" style="background: white; margin-bottom: 0.0001pt; text-align: justify;">
<span lang="EN-US" style="color: #454545; font-size: 12.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">In this situation what are the
ways to not only continue the business operations but also come out of the stress.
As per my experience very few units ( not more than 20%) bounce back, rest go
into oblivion. Reviving a unit under the tight noose of the lenders, government
scrutiny and paucity of funds needs lot of courage and sound strategy. Some
of the following suggestions may help in revival process:<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin: 0cm 0cm 0.0001pt; text-align: justify; text-indent: -18pt;">
<span lang="EN-US" style="color: #454545; font-size: 12.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";"> 1. The unit can be switched over to
job work : this will help in scaling up the operations and also generate
revenues without much investment;<o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin: 0cm 0cm 0.0001pt; text-align: justify; text-indent: -18pt;">
<span lang="EN-US" style="color: #454545; font-size: 12.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";"> 2. Credit period needs to be
reduced to the maximum even if it causing some margin hit;</span></div>
<div class="MsoNormal" style="background: white; margin: 0cm 0cm 0.0001pt; text-align: justify; text-indent: -18pt;">
<span style="color: #454545; font-size: 12pt; text-indent: -18pt;"> 3. Non core asset, if any, should
be immediately disposed off. However this takes some time as proper pricing may
not be offered. While disposing of such assets ‘ liquidity’should be
preferred than the ‘value of sale’ as the need of the hour is liquidity. It is
to some extent emotional issue too but when there is fire at home, one can not
be selective in saving the life. However, this step is possible only with
the permission of the Lenders if assets are mortgaged.</span></div>
<div class="MsoNormal" style="background: white; margin: 0cm 0cm 0.0001pt; text-align: justify; text-indent: -18pt;">
<span lang="EN-US" style="color: #454545; font-size: 12.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";"> 4. Change in management team: cost
saving is the need of the hour and shall be strictly adhered , this need small
team with lowest possible cost. Such units can not afford very high cost team
but the talent Can not be compromised . Outsourcing the talent can be good option to fill the gap . <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin: 0cm 0cm 0.0001pt; text-align: justify; text-indent: -18pt;">
<span lang="EN-US" style="color: #454545; font-size: 12.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";"> 5. Any additional funding into the
form of debt should be avoided thought it may not be available too. The cost
saving is the earning too. Equity is the most suitable way of raising
funds. Management should be always open to the strategic investment even if it
transpires into the change in management for the benefit of the unit . There is
no better option than reviving the unit. <o:p></o:p></span></div>
<div class="MsoNormal" style="background: white; margin: 0cm 0cm 0.0001pt; text-align: justify; text-indent: -18pt;">
<span lang="EN-US" style="color: #454545;"><span style="font-stretch: normal;"> 6. </span><span style="font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span lang="EN-US" style="color: #454545; font-size: 12.0pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">Above all, self confidence of
the owner is the key to revive the unit as he is the one who created it and has
the guts to revive too . Poor market support , tough legal battles and tight
financial position are only temporary obstacles need to be addressed with hard
and quick decisions, patience and positive attitude.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<br />
<div class="MsoNormal">
<span lang="EN-US" style="font-size: 12.0pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">It may take 2-3
years to revive an unit but once the
revival happens, promoter can regain the lost image and money. <o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-50693417373827879732016-02-19T17:13:00.004+05:302016-02-19T17:13:54.815+05:30Revival of Stressed Account: Employee Participation<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="yiv3868215076p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span class="yiv3868215076s1"><span lang="EN-US" style="color: #454545; font-family: "Calibri",sans-serif; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">In last some of my posts I had shared my views on one
of the most sensitive issue of banking sector currently i.e. Stressed/ NPA
accounts. There are lot of discussions, analysis and suggestions in this
regard. Infact, this issue has in last three years surpassed all the other
issues in banking industry affecting the new businesses severely. As mentioned
by me only one side is not to blame for this situation. Lenders are equally
responsible for this which they should accept, correct and move forward. Just
reprimanding the borrowers and branding them fraudsters will not serve any
purpose. Rather this will cause huge financial losses to the lending fraternity
along with the unemployment of large number of lower class people . The
situation deteriorates when there is panicness to use all the tools available
in the rule book. The race to prove intelligency, honesty and dedication by employees
from the lending side is proving quite costly to the whole system . Although it
is a tough task to revive a unit which is failed and that too if that has
happened due to manipulative tactics of the borrowers, but such cases can be
segregated and handled in different way . Whereas genuine cases, which are much
more in number, shall be handled with care which will not only help the lenders
in realising their money in long run but also save</span></span><span class="yiv3868215076apple-converted-space"><span lang="EN-US" style="color: #454545; font-family: "Calibri",sans-serif; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"> </span></span><span class="apple-converted-space"><span lang="EN-US" style="color: #454545; font-family: "Calibri",sans-serif; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"> </span></span><span class="yiv3868215076s1"><span lang="EN-US" style="color: #454545; font-family: "Calibri",sans-serif; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">the life of many poor families who are dependent on
such units. As per data available more than 4 lac units have become sick
causing unemployment to more than 100 lac employees .</span></span><span class="yiv3868215076apple-converted-space"><span lang="EN-US" style="color: #454545; font-family: "Calibri",sans-serif; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"> </span></span><span lang="EN-US" style="color: #454545; font-family: "Calibri",sans-serif; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><o:p></o:p></span></div>
<div class="yiv3868215076p1" style="background: white; margin-bottom: .0001pt; margin: 0cm;">
<br /></div>
<br />
<div class="yiv3868215076p1" style="background: white; margin-bottom: .0001pt; margin: 0cm; text-align: justify;">
<span class="yiv3868215076s1"><span lang="EN-US" style="color: #454545; font-family: "Calibri",sans-serif; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">To revive the units lenders should take positive
view as they had appraised the units in past. There may be some miscalculations
or situations beyond the control of the borrowers which led to sickness. Also,
the revival can be with stringent conditions like severe monitoring, management
interference , takeover of management if required and pledging full equity. In
addition to this the <b>employee
participation</b> in management and equity sharing with the employees can prove
to be a good idea. The assessment shall be genuine and practical with long term
perspective . In my view the revival should be given try to the maximum
possible before resorting to the killing of the unit. Let the poor labour /
employees who have become job less earn their bread from families and also
participate in the ownership of such units. With better participation, no one
can stop the sick units from revival. Also, the period of revival should be
sufficient enough based on proper appraisal of the project and situation so
that it is not repeated. We have noticed in many cases, particularly infra
sector, where the actual cash flow can service the debt in 15 years but to make
the proposal attractive, the projections have been manipulated and ultimately
debt could not be serviced in time. <o:p></o:p></span></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-75294805693721827942016-02-19T17:12:00.000+05:302016-02-19T17:12:06.885+05:30NPA / Stress : Disease but Not the End <div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">Bankers/ Lenders behave differently and rather
rudely once the account becomes NPA it seems they simply want to use all
the tools laid down in the rule book. They would Fire, insult and pressurize
the borrower to repay loan. They are not wrong but the use of all these tactics
is not appreciable. Probably lenders believe that business is without risk and
full of certainty. In their view, the business can not go wrong and if goes, it
is because of malafide intentions of the borrower. Hence in the process of
using all the tools available with them, they forget that the business was
properly analysed by themselves only and any drastic action will hurt the poor
people most. They use every tactic of
recovery at any cost. <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">Lenders who
till recently were boasting their lending capabilities by referring the
successful borrower, suddenly start distancing themselves from the borrower as
if he is swine flu patient. Top to bottom banking officials , politicians ,
investigative agencies and so on try to reprimand him . They behave as if they
don't know him, nobody wants to tell the world that the same borrower was their
most sought after golden goose well kept secret . Till recently they were
boosting of knowing this high profile borrower and now ???!!! What happened ,
what went wrong, don't you know business is full of uncertainty . Bankers only
appraised the proposal, recommended at various level and sanctioned . If
everything is transparent , no need to hide the fact. Help him, take care of
him and try to make him stand again. No doubt if the intentions of the borrower are wrong, fund is
diverted, he deserves to be punished . Lenders have no right to sit on
securities and take the life of hundreds of people for granted . There should make
every effort to revive the unit so the life of thousands of poor people can be saved. There should not be one sided blame
on the borrower only , if we share the earning in good time why not take responsibility
in tough time . CIBIL reports should be used for better judgment , it should
not be an obstacle. I firmly believe if the lenders behave in matured way and
help the NPA borrower, they can recover substantial money which is infact
public money. </span><span lang="EN-US"><o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-67051416053519164012016-02-18T17:43:00.000+05:302016-02-18T17:43:07.511+05:30Effect of Federal Rate, RBI Actions and Chinese Impact on NPA in India<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">Recent
developments across the world are showing signs of further stress in the
economy. China has already devalued its’ currency by almost 5% which has burnt
the cream of share market in India by almost 10%. This has also made the USD
against INR costlier by almost 5%. Rupee has already crossed Rs. 66.00 barrier
recently. Meanwhile there was a tension in Indian economy of US federal rate
hike. Had it been, it would have further affected the FDI in the country. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">Since long
things are not very favourable for the country. This could have been handled by
positive support to the domestic industry and better interest rates but it
seems the analysis at the highest level is not in sync with the ground
realities. We are deeply affected by the
happenings in China and US as a part of global economy but the strategies are
not in place to face these situations which are quite frequent now. China may further devalue the currency by
5%-10% which would throw great challenge to Indian economy. Further the
interest rates in our country are too high to sustain. Indian industry without
proper support will not be in the position to combat the global challenges and
this will further deteriorate the NPA situation of our country. In current year
2014-15, we could not come across to any exciting steps by the government which
can help the NPA accounts to improve. Major capital intensive sectors like
Infrastructure (Road, power, port, bridges etc.), Steel, Cement, real
estate, automobiles, mining are passing
through a serious surviving challenges and something concrete is not done,
there will be sea of stressed accounts in the banking sector. <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">Last three years
have seen huge jump in NPA accounts bleeding almost all the banks. This trend
is not yet stopped rather the events unfolding in Indian corporate sector and
global challenges will further strengthen this jump of NPA accounts. <o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-83910395137897307002016-02-18T17:40:00.002+05:302016-02-18T17:40:41.527+05:30Mounting NPAs: What Went Wrong (WWW)? Part-5: Over ambitions/Greed of Entrepreneurs<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">To conclude my views over mounting NPAs , last
but not the least key factor lies with the borrowers. The golden opportunity
for Indian entrepreneurs in liberalised economy post 1991 was unprecedented.
Suddenly many new sectors particularly with high capital intensive like
telecom, finance, infrastructure, global trading, logistics and engineering opened
up. The domestic players were further pushed by overseas players and thus the
economy started growing day and night. Those who could perform were more greedy
to grow faster and those who were left
behind did anything required to manipulate. Lot of borrowers defaulted due to
over ambitious planning and miscalculation. Greed of the borrowers sabotaged
the banking system. They were aware of the prevailing legal system which
acts as shield for the borrowers. Easy availability of funds, lethargic legal
process, manipulative practices of the borrowers, corruption, growing economy
and uncontrolled banking growth were the key factors for ever mounting NPAs.<span class="apple-converted-space"> <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">Unfortunately, we have not yet learned the lesson
from this and continue to ignore these facts. We believe in short term vision
where infusion of funds in phases to take care of survival of banks is made by
the respective governments.<span class="apple-converted-space"> <o:p></o:p></span></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">A detailed Corrective Action Plan (CAP) is
required at the highest level to avoid any future growth in NPA which is
possible only with honest and intelligent actions. In our country top 20
borrowers have exposure to the extent of 20% of total lending portfolio which
in itself very sensitive issue and needs to be handled very judiciously. <o:p></o:p></span></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">I will share my views on various suggestions to
control NPAs in next posts.</span><span lang="EN-US"><o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0tag:blogger.com,1999:blog-7326762656244516531.post-58145321557418518242016-02-18T17:38:00.004+05:302016-02-18T17:38:47.409+05:30Mounting NPAs: What Went Wrong (WWW)? Part-4: Political Compulsions & Corruption<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">In addition to
the factors analysed in previous posts responsible for disaster in the Banks in
the form of NPAs and Stressed accounts i.e. a)Fast development of Banking
industry; and b) Sudden Growth in Indian Economy, I would like share my views
on one more major cause that led to huge losses to the Banks. This important
factor was “Political Compulsions and Corruption”. Congress Government under
the leadership of Mr. P.V. Narsimha Rao introduced liberalization to the
economy. It was major turning point for the country and helped a lot to this
party in ruling the country. They were encashing this very meticulously by
branding other parties either communist or dumb in economics. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">Under new
environment of liberalization, the economy was taking new shape and offering
lot of opportunities to the domestic and overseas players. The volume of money
was too much and luring the people from all walks. Political parties had
started looking at economics as intelligent and smart players. They understood
their importance in policy framing, decision making, appointments and fund
raising. They started interfering in banking systems, guiding and helping the
business community in sourcing finance. These activities were root cause for
rampant corruption in the system. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">Then in 1999,
NDA Govt. came under the leadership of Mr. Vajpayee who inherited the fast
growing economy and huge opportunities to develop. Infrastructure was the focus
and huge investment was required in Infra, Power and Telecom, which would not
have been possible without government support. These developments somewhere not
only forced the banks to lend aggressively but also liberally. It was the
beginning of corruption and defaults too. The surprise exit of NDA made the new
UPA government overconfident. The power to new group was for next 10 years. The
failure of opposition parties to control the ruling parties (may be some nexus,
I don’t know) was quite visible. It was the public at last who threw away this
group from power and again gave opportunity to NDA under Mr. Modi. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span lang="EN-US">Thus
developments from 1999-2013, Interference of political parties in lending
money, appointments and policy making resulted into sharp increase of lending.
This was not done judiciously and hence huge chunk of lending became non
performing. Bureaucrats and politicians for their personal benefits put the
banks in big problem. Corruption was rampant, we can’t deny its existence today
even, which to a great extent is the major factor responsible for NPAs.
Compulsion of moving fast and feed the requirement of funds to the economy also
lured for lending very liberally. <o:p></o:p></span></div>
<br />
<div class="MsoNormal">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US" style="background: white; font-family: 'Segoe UI', sans-serif; font-size: 10pt; line-height: 115%;">Government
should give serious thought before giving money to the Banks and ensure that
necessary precautions are taken as this is poor public’s money which has been
given in past too. In fact, large part of such infusion drains out in due
course and again the demand for more infusion is raised by the Banks. It gives
me the memories of Ram Leela where in Kumbhkaran demands continuously huge
quantity of food after waking up. Better the Government wakes up at least now and
control this drainage of funds.<o:p></o:p></span></div>
</div>
C P Jainhttp://www.blogger.com/profile/04946639381828959468noreply@blogger.com0