Banks at it again, disburse a third of FY15 loan in last 15 days-Business Standard-15th April 2015
( Following different dated articles and my blogs will speak clearly that banks least bother government guidelines and are habituated to commit fraud with figures and habituated to indulge in window dressing despite all bans and restrictive advices by RBI or MOF . Because of the fact that they like to brighten their career even if it harms banks-Danendra Jain)
Loan growth shoots up to 12.6% from 9.5% in the span of a fortnight
Bank have turned a deaf ear once again to several warnings by the regulator, as well as the government, for avoiding quarter-end window-dressing of their balance sheet.
Reserve Bank of India (RBI) data show banks disbursed Rs 2.66 lakh crore worth of loans during the last fortnight of 2014-15, which ended on April 3. This is almost a third of the year's total loan growth of Rs 7.66 lakh crore from the sector.
This enabled loan growth to reach 12.6 per cent for the entire financial year. Till the previous fortnight, loan growth was 9.5 per cent, the lowest in two decades.
Deposit mobilisation, from both retail and corporate customers (known as bulk deposits), was also healthy. Banks mobilised Rs 3.25 lakh crore of deposits in the last reporting fortnight, resulting in deposit growth of 12.8 per cent for the full financial year.
“A sudden pick-up in loan disbursement is the usual seasonal factor in the last fortnight of every financial year, due to the last-mile effort by banks to shore up their balance sheets. This will not give them much benefit in terms of higher net interest margins, as these are likely to be low-yielding short term loans,” said Rupa Rege Nitsure, group chief economist, L&T Financial Services.
The mad rush to increase the balance sheet size during year-end is mostly evident with public sector banks (PSBs), which scramble to meet the year-end target given to their owner at the beginning of the year.
According to a Canara Bank executive, there was a spike at the end of the quarter as clients had fully drawn their limits. “It does not reflect any sharp upturn in credit demand. There will be a certain deleveraging in the next few fortnights. There is also an element of banks becoming aggressive at year-end to shore up the balance sheet.”
Reserve Bank of India (RBI) data show banks disbursed Rs 2.66 lakh crore worth of loans during the last fortnight of 2014-15, which ended on April 3. This is almost a third of the year's total loan growth of Rs 7.66 lakh crore from the sector.
This enabled loan growth to reach 12.6 per cent for the entire financial year. Till the previous fortnight, loan growth was 9.5 per cent, the lowest in two decades.
Deposit mobilisation, from both retail and corporate customers (known as bulk deposits), was also healthy. Banks mobilised Rs 3.25 lakh crore of deposits in the last reporting fortnight, resulting in deposit growth of 12.8 per cent for the full financial year.
“A sudden pick-up in loan disbursement is the usual seasonal factor in the last fortnight of every financial year, due to the last-mile effort by banks to shore up their balance sheets. This will not give them much benefit in terms of higher net interest margins, as these are likely to be low-yielding short term loans,” said Rupa Rege Nitsure, group chief economist, L&T Financial Services.
The mad rush to increase the balance sheet size during year-end is mostly evident with public sector banks (PSBs), which scramble to meet the year-end target given to their owner at the beginning of the year.
According to a Canara Bank executive, there was a spike at the end of the quarter as clients had fully drawn their limits. “It does not reflect any sharp upturn in credit demand. There will be a certain deleveraging in the next few fortnights. There is also an element of banks becoming aggressive at year-end to shore up the balance sheet.”
Loan demand was sluggish in the financial year, amid a slowing economy in which interest rates stayed high. It was only in January that the central bank reversed the interest rate cycle, cutting the policy rate by 25 basis points, followed by another cut of the same magnitude in March.
Banks, however, only responded to RBI’s rate reversal call this month, with State Bank of India (SBI), ICICI Bank, HDFC Bank and Axis Bank reducing their base rate, the benchmark to which all loan rates are linked. While some of the smaller private banks have also reduced their lending rate, no PSB has done so, apart from SBI.
Experts said loan demand might continue to remain weak in the current financial year. “FY16 might not be much different from FY15, given the weaknesses in local and global demand. The government's concerted efforts in the infra space will take some time to change the ground reality. Industry will recover at a modest pace, given the macro headwinds,” said Nitsure.
Banks, however, only responded to RBI’s rate reversal call this month, with State Bank of India (SBI), ICICI Bank, HDFC Bank and Axis Bank reducing their base rate, the benchmark to which all loan rates are linked. While some of the smaller private banks have also reduced their lending rate, no PSB has done so, apart from SBI.
Experts said loan demand might continue to remain weak in the current financial year. “FY16 might not be much different from FY15, given the weaknesses in local and global demand. The government's concerted efforts in the infra space will take some time to change the ground reality. Industry will recover at a modest pace, given the macro headwinds,” said Nitsure.
Window Dressing in Banks - Dishonest Officers Get Promotion; CMDs and EDs Get Monetary Benefits BUT Honest Officers / Staff Get Lower Salary Increases - Danendra Jain --- Written three years ago
Senior bank officials working as Branch Head or Regional Head or Circle Head or Zonal Head or Central Head, all have barring some exceptions resorted to window dressing in the past and it is their mastery in art of window dressing that they continued to be blessed with one after other promotions superseding honest performers.
They not only resorted to window dressing for deposits but also for advances.RBI never took notice of it or one may say that they indirectly supported this unhealthy and unethical practice prevalent in public sector banks in the name of achievement of targets.
Bank officers paid abnormal rates of interest for short term deposits and achieved the target of deposits. Bankers then motivated high value borrowers to withdraw their unavailed portion of sanctioned limit on closing days and park the same in their deposit account. In this way they made artificial jump in deposits and advances in last few days of closing year or closing quarter.
This fraudulent method of achieving target jeopardized the career of hundreds of senior officers who did not resort to window dressing and these officers were sidelined, posted at critical places and finally rejected in all promotion processes. There have been hundreds of senior officers who are expert in window dressing of advances too. They arrange short target valued clients to avail short term loan even if the corporate do not need and finally compensate them in different ways.
These corrupt bankers have caused huge loss to banks by paying abnormal interest for short period and by providing sub-PLR rate on advances to big clients who obliged them during closing period. All this caused huge loss to tax payers, investors and those who kept their hard money in saving deposits. Not only this these officers played big role in creation of bad assets in banks and finally writing off of big values loans .Volume of NPA was always concealed by these clever bankers and now on CBS they are getting exposed . Gross NPA of banks has made a new top and gone beyond control.
Finally when bank incurred loss or earned less profit, even wage revision of staff was treated by Ministry in casual manner and ultimately all staff had to bear with nominal or negligible rise in their wages.
Who will after all punish these corrupt officers who have been using their flattery and bribery powers to buy the good wishes of ministers and RBI officials and who have been buying even vigilance officials to close their files related to corrupt activities?
They not only resorted to window dressing for deposits but also for advances.RBI never took notice of it or one may say that they indirectly supported this unhealthy and unethical practice prevalent in public sector banks in the name of achievement of targets.
Bank officers paid abnormal rates of interest for short term deposits and achieved the target of deposits. Bankers then motivated high value borrowers to withdraw their unavailed portion of sanctioned limit on closing days and park the same in their deposit account. In this way they made artificial jump in deposits and advances in last few days of closing year or closing quarter.
This fraudulent method of achieving target jeopardized the career of hundreds of senior officers who did not resort to window dressing and these officers were sidelined, posted at critical places and finally rejected in all promotion processes. There have been hundreds of senior officers who are expert in window dressing of advances too. They arrange short target valued clients to avail short term loan even if the corporate do not need and finally compensate them in different ways.
These corrupt bankers have caused huge loss to banks by paying abnormal interest for short period and by providing sub-PLR rate on advances to big clients who obliged them during closing period. All this caused huge loss to tax payers, investors and those who kept their hard money in saving deposits. Not only this these officers played big role in creation of bad assets in banks and finally writing off of big values loans .Volume of NPA was always concealed by these clever bankers and now on CBS they are getting exposed . Gross NPA of banks has made a new top and gone beyond control.
Finally when bank incurred loss or earned less profit, even wage revision of staff was treated by Ministry in casual manner and ultimately all staff had to bear with nominal or negligible rise in their wages.
Who will after all punish these corrupt officers who have been using their flattery and bribery powers to buy the good wishes of ministers and RBI officials and who have been buying even vigilance officials to close their files related to corrupt activities?
After all why RBI officials and Ministry of Finance maintained silence for decades together is a mystery? Most of senior banks have got blessing of some ministers or some officers in MOF or RBI and this is why they not only get before-time promotion but also get safe exit at the time of retirement even if they committed hundreds of irregularities in their posting at various offices.
*****
PS by Rajesh Goyal : Mr Jain in the above article has summed up a kind of fraud which is going in banking industry for years. RBI and Finance Ministry have not taken any action against any CMD or top officials during all these years. They are very well aware of these malpractices which breed corruption but they have chosen to remain silent except for issuing a routine circular that banks should not indulge in window dressing. This is similar to our corrupt politicians who give long speeches in the Parliament that we need to root out corruption from the society. RBI and Finance Ministry are part of this scam. Now it is openly being discussed in the public. In an article titled " Public Banks Face Cap On Costly Year End Deposits", it is mentioned that "In the just concluded financial year, banks raised nearly a third of their total deposits in the last month of the year". The article further says
"..It appears that in order to garner deposits and increase balance sheet size, banks tend to raise deposits and certificates of deposits at very high rates....Mobilization of such deposits unsustainably high rates, is not only likely to adversely affect the profitability of banks but also the asset liability management of bank," said a note sent out by finance ministry seeking views of public sector banks on the proposal".
The ET articles also says "The interest rates on certificates of deposits, or CDs, the instrument used by banks to raise bulk or wholesale deposits, rose to a maximum of 11.5% by March, over 150 basis points from the end of December". This kind of window dressing is clearly against the retail depositors, who even on 1 to 10 years deposits get around only 9%. No PS Bank paid more than 9.5% even during the period when rate of interests have peaked. The faithful all-weather customers, including senior citizens are denied the highest rate of interest, which is paid to corporate and some government deposits. To garner government deposits, bribe is paid at various levels even by almost all PS bank officers, as senior officers in government departments are well aware that dishonest bank officers need these to get promotions and such dishonest officers can afford to pay for procuring such deposits.
Can any CMD or ED or GM can say that he / she is not aware of such practices. Rather they openly encourage such practices in meetings and praise such officers who have been able to get such deposits / loans. It is sad commentary on the part of Indian banking. I can only hope that after some cleaning in the promotion policy guidelines recently, RBI and Ministry of Finance will come together and punish those who indulge in such practices to earn monetary benefits and remain in good books of senior officers / ministry officials.
Window-dressing of deposits by banks: Some truths-Business Standard
23 Sept 2012 By
Window-dressing is one of the uncomfortable phenomena in the Indian banking system. The financial status of banks is evaluated every quarter (March-end, June-end, September-end and December-end).
At these points of evaluation, banks try to boost their deposit figures through artificial means. However, the make-up does not last long. The deposit figures start dropping in the ensuing weeks till the attainment of a natural height. The paradox to be noted is that window-dressing is artificial, whereas window-undressing is quite natural.
In spite of being transitory, window-dressing has become a common and normal practice among bankers and an integrated feature of the system so much so that the quarterly figures of deposits are always accepted with a pinch of salt.
All banks window-dress; only the degree differs.
RBI’s Concern
The phenomenon of window-dressing continues despite the RBI’s warningsand suasion. The RBI’s concern is evident from its Business Season Credit Policy, 1995.
To quote, “Banks have been repeatedly warned to eschew window-dressing and it is unfortunate that despite strong suasion this warning has been ignored. Banks are cautioned once again against the recurrence of such a phenomenon and I am constrained to say that we may have to evolve certain arrangements, including punitive action, to prevent the recurrence of such a phenomenon.” (Paragraph 5 of the RBI Governor’s letter to SCBs on September 29, 1995 detailing the Busy Season Credit Policy)
The RBI Annual Report 1998-99 cited window-dressing of deposits as one of the factors contributing to the “hardening of call rates”.
The RBI Bulletin of May 2000 refers to window-dressing causing “year-end bulge”. In his speech titled, “The Evolution of Banking Regulations in India – A Retrospect”, one of the then RBI Deputy Governors, V. Leeladhar, characterised window-dressing as “prudentially undesirable.” (RBI Bulletin, May, 2007)
Why Undesirable?
Window-dressing is undesirable because it introduces distortions in monetary and banking aggregates and, thereby, affects the process of monetary and banking policy and planning adversely.
Moreover, it makes the bank officials concerned complacent about making real efforts to mobilise ‘stable’ deposits. Of late, it is being realised that deposit mobilisation is often more effort-elastic than anything else. Window-dressed deposits are rather fickle.
Reasons
Over time, the Indian banking system has become more competitive. Not only there is stiff competition among banks to grab public deposits but also they have to compete against non-banks offering attractive returns. In contrast, the savings potential of the country has been varying in a limited range. The following graph illustrates that the country’s financial savings as a percentage of GDP at CMP has been hovering around 10-13 for the past seven years. (Source: Economic Survey 2011-12, pp.5, Table 1.4). A roller-coaster ride, indeed!
Thus, there is a classical economic problem: Limited resources and unlimited competitors. The demand for of the latter is not only high but urgent and swift as well. In such a situation, those who can plan and execute the plans effectively to get a major chunk of savings can actually increase deposits; but those ‘career-conscious’ aspirants who fall short resort to window-dressing.
In the above framework, one pertinent question arises. Why do bankers aspire for deposits and deposits alone, when there exist so many other performance indicators? Even if banking has come a long way, still the emphasis is on ‘growth’ and within ‘growth’, deposit figures are being focussed first because banks are basically ‘special’ financial intermediaries, and deposits are their raw materials for credit creation. This stark reality cannot be just wished away.
Banks sign a memorandum of understanding with the Finance Ministry, Government of India that benchmarks the performance of bank Chairman and Managing Directors (CMDs) against certain parameters, within which ‘growth in business (deposits and loans)’ figures prominently. If banks attain their targets agreed upon, CMDs get a bonus. This is the starting line for hounding ‘growth’.
The process is replicated at the micro-levels of the hierarchy where first and foremost, growth in deposits shown by incumbents at various levels is taken as a significant performance indicator.
In view of this, a blanket target-oriented approach is followed in mobilising deposits. The targets are fixed from the top on an increasing trend basis irrespective of various endogenous and exogenous changes the operating area might have undergone or might be experiencing during the time interval of the last and forthcoming evaluation points.
Generally speaking, there is a lack of gradual, continuous and systematic efforts to mobilise deposits because of stationary nature of the evaluation points.
Towards the evaluation points of time bankers receive a spur and run around to get deposits. And haste makes waste.
The Ultimate Truth
Like risk, window-dressing can only be minimised, but not eliminated. Let us accept the reality that so long as ‘growth’ is focussed in evaluation of financial status of banks, window-dressing will continue. All the stakeholders in the process of evaluation should be ‘deprogrammed’ from their obsession with ‘growth’.
Evaluation should include other parameters pertaining to a bank’s efficiency, safety and soundness, staff productivity, financial inclusion, technology and the like as determinants of achievements and a simple, weighted index needs to be developed to calibrate a bank chief’s performance. This is a challenge for the Finance Ministry which should constitute a committee with representations from stakeholders to devise the index.
Window dressing’ of balance sheet irks RBI
Mumbai, 2014 April 1:
The practice of banks ‘window dressing’ their balance sheets in the month of March may soon be a thing of the past. In its first bi-monthly monetary policy statement, the RBI said it plans to put in place measures to curb such a practice.
The central bank said, “Liquidity conditions have tightened in March, partly on account of year-end ‘window dressing’ by banks, though an extraordinary infusion of liquidity by the Reserve Bank has mitigated the tightness.
“The Reserve Bank will propose measures to reduce such practices.”
RBI Governor Raghuram Rajan pointed out that towards the end of the year banks try to build a certain kind of balance sheet.
“Different reasons are driving different banks (to go for window dressing). Some want to reduce the size of their risk-weighted assets so as to qualify for lower capital requirements.
“Others want to increase the size of their assets to meet Government performance requirements. It varies,” said Rajan.
The Governor observed that these distortions (window dressing) do affect a variety of markets. For example, the Certificate of Deposit (CD) market became very tight starting in February itself and so the RBI took some pre-emptive steps to improve liquidity.
Rajan said, “But in the longer term, we think the RBI should not be in the business of bailing out the banking system with infusions of liquidity when the banking system itself is creating its own problems.
He observed that year-end should not be a time for anything special to happen. It should be smooth.
Sunday, April 14, 2013
Banks Willfully Ignore Government Guidelines On Window Dressing in Banks
Following is the news item published in Business Standard on 14th of April 2013 :-----
The government’s attempts to restrain public sector banks from rushing for business towards the end of the financial year to meet targets proved futile, with a third of the deposits in 2012-13 accumulated in March.
According to data released by the Reserve Bank of India (RBI), for the year ended March, deposits stood at Rs 10.27 lakh crore, recording a rise of 17.4 per cent year-on-year. In March, banks mopped Rs 3.75 lakh crore.
Total bank credit in 2012-13 stood at Rs 7.8 lakh crore, a rise of 17 per cent. Of the total credit, Rs 2.7 lakh crore was disbursed in March.
Incidentally, banks have raised Rs 1,84,600 crore of deposits and disbursed Rs 1,33,490 crore of loans in the last week of March alone.
This is the first time since 2009-10 that annual deposit growth outpaced credit growth. For 2012-13, RBI had projected credit growth of 16 per cent and deposit growth of 15 per cent.
The finance ministry had taken several steps to restrain government-owned banks, which control 70 per cent of the market, from rushing for funds towards the end of the financial year. In March 2012, a rush for funds had resulted in a steep rise in short-term rates, with rates for three-month certificates of deposit exceeding 12 per cent. This had increased the cost of funds for banks and exerted pressure on margins.
Click on folowing link to read more
Guidelines Issued In May 2012
Finance ministry drops deposit & lending growth from performance target list for PSU banks
Sangita Mehta, Economic times News Mar 5, 2012,
MUMBAI: CEOs of public sector banks can no longer rake in bonuses by window dressing year-end deposits and loan numbers. For years, banks have been mopping up bulk deposits from large clients in March only to return the money in the first week of April - transactions that prop up total deposit figures for March 31.
Similarly, deals are cut to give out loans to borrowers with an understanding that they would be repaid a month later. Smart customers borrow from one bank and park the money as a deposit with another PSU bank. The circular game helps banks dress up numbers and meet targets.
This practice will now come to an end. The finance ministry has dropped annual deposit and advance growth from the list of performance targets laid down in the annual MoU that all PSU banks have to enter into with the government. From now on, banks will have to focus on the remaining parameters like net interest margin, return on assets, NPAs, fee income, priority sector loans, financial inclusion,etc.
If a bank meets all targets that are set in the beginning of the year, then the chairman and CEOs receive a bonus of 8-lakh each. According to a senior banker, the finance ministry, in a letter to all PSU banks, said, "It has been felt that banks are under pressure to mobilise deposits to meet the statement of intent targets and this may lead banks to secure high cost deposits which may affect the health of banks."
The exclusion of deposits and loans from the list of performance targets will impact the money market as well. AMCs that make a killing by parking bulk money with banks at higher rates will have to look for other investment avenues. Last week, a number of banks raised money in the range of 10.85-11.10%.
P&S Bank agreed to pay 11% for a 700 crore 3-month certificate of deposits. IDBI Bank raised 4,000 crore at 11.10-11.15% and Corporation Bank raised 2,500 crore at 11.10%. Such interest rates for short-term bulk money rose 125 bps since the RBI cut CRR in January.
"Banks have been doing this for decades. It's a customary practice and an open secret. The government has raised the issue when banks are battling liquidity crunch and a rise in sticky loans," said an analyst.
The ministry seems to have taken the issue seriously. The letter adds: "Also, it is felt that banks are compelled to go all out to achieve target on credit.
Sometimes PSU banks may compromise on quality of the loan proposal to achieve target for the advances which may result in higher NPA leading banks to make high provision.
It has been decided to drop the percentage growth in deposit and advances and market share parameter from the SOI."
Some bank treasury heads are happy with the directive. Among other responsibilities, the treasury department has to manage a bank's net interest income, interest rate risk and asset-liability mismatch. In the past, treasurers had objected to top managements' decision to meet targets at the cost of margins.
Performance Assessment of Banks -By Danendra
Performance Assessment of Banks -By Danendra
Jain--Tuesday, March 06, 2012
After 43 years of bank’s nationalization and 21 years of adoption of policy of liberalization and reformation launched in the year 1991,our government and our learned Finance Minister has realized for the first time, the bad consequences of imposition of targets for deposit and advances on CMDs of banks. It is undoubtedly and undeniable true that due to unrealistic targets there used to be unbearable pressure from seniors on field functionaries for its achievement.
And due to application of evil ways and means to reach nearer to target and due to unhealthy competitions among flatterer officers in reaching nearer to bosses, officials of banks during last three to four decades have in general lost a lot of its health, accumulated unimaginable volume of bad assets, created a gang of inefficient, non performers but cleaver, flatterer and corrupt workforce and eventually caused huge loss to the bank as also to its culture.
These top ranked officers could get the top post only and mostly by indulging in window dressing during their posting at branches or in the regions and it is they who used to teach same window dressing to their juniors and award only those officers who were clever in following their line of action even at the cost of overall health of banks. It is they who taught juniors to compromise quality in lending as also in deposits.
Bank officers who could manage illegal money in sanction of loans or through illegal ways and means could pay bribe in acquisition of deposits and also please their bosses to get timely promotion and best posting.
I feel pleasure that now MOF has wisely and rightly decided to remove deposit and advance target for future assessment of bank's performance.
MOF will now focus on profit, growth in Net Interest margin, non-interest income, financial inclusion etc. Of course this will result in healthy growth of deposit and advances also. Bankers will now pay their attention on quality of lending and low cost deposits to boost profit prospects.
Bank officials will not dare offering higher rate of interest on bulk deposits only to serve their self interest of achieving targets set by MOF.
After all it is public money which bank officials are supposed to manage for the betterment of society as also for the growth of bank and its depositors.
Gradually RBI and MOF will also realize that freedom given to banks to decide their own rate structure for deposits and advances is also causing damage to banks and creating unwarranted, unhealthy and avoidable competition among public sector banks .
Banks in general are managed by officers who do not possess adequate banking knowledge, who are inefficient, inexperienced, greedy, flatterers and corrupt officials and who focus more on self interest than on true health and future of their employer bank. As such unregulated freedom given to bankers resulted in corrupt practices and bad habits.
I hope now at least CMDs of various banks will not indulge in window dressing of deposits and advances and in turn they will not expect window dressing from their juniors to achieve the unrealistic targets imposed on them for deposits and advances.
In brief I may say that by saying good bye to target for deposits and advances, MOF has now started beginning of end of bad culture and launching of new initiatives to attract true value to government sector banks.
I hope now policies and action programme in public sector banks will move in new direction and enter into new era and give birth to new culture and at least keep flatterers away from mainstream.
And gradually erstwhile corrupt bankers will be forced to focus on recovery of bad loans created and accumulated by bad bankers they produced and concentrate on growth of real profit and discard habit of manipulation with financials and discard the habit of concealment of bad loans to earn good will of Ministers.
And gradually erstwhile corrupt bankers will be forced to focus on recovery of bad loans created and accumulated by bad bankers they produced and concentrate on growth of real profit and discard habit of manipulation with financials and discard the habit of concealment of bad loans to earn good will of Ministers.
Last but not the least, Flatterers will no more get out of turn elevation in post and position and true bankers will get the chance.
http://importantbankingnews.blogspot.in/2013/04/banks-willfully-ignore-government.html
http://importantbankingnews.blogspot.in/2013/06/window-dressing-by-banks-is-suicidal.html
http://articles.economictimes.indiatimes.com/2012-05-04/news/31572764_1_bulk-deposits-bank-deposits-card-rate
http://importantbankingnews.blogspot.in/2013/04/banks-willfully-ignore-government.html
http://importantbankingnews.blogspot.in/2013/06/window-dressing-by-banks-is-suicidal.html
http://articles.economictimes.indiatimes.com/2012-05-04/news/31572764_1_bulk-deposits-bank-deposits-card-rate
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