Window Dressing Cannot Stop, It Is Imbibed In Banker's Blood

Suggestion To Stop Window Dressing
By Pannvalan
1. 'Point to Point' growth or 'Year on Year' growth concepts shall be dispensed with immediately, since they are always misleading and present an unrealistic picture.
2. In their place, 'growth/variance' must be measured basing on the 'average figures'. Here, 'average' means 'average of all fortnightly figures' for the whole year. Since manipulation of figures throughout the year is not possible for anybody, this will serve as a better barometer reflecting t...he true state of affairs.

3. 'Bulk Deposits' and 'Large scale Advances for a short period say less than 3 weeks' must be kept out of reckoning, while evaluating a branch/bank performance.
4. Similarly, last minute changes in NPAs and Profit & Loss Account beyond a particular level, say Rs.10 lakhs at the branch level and Rs.1 crore and above at Head Office must be looked into by the Concurrent Auditors, Statutory Auditors and RBI.
5. 'Inter-Bank Deposits' must be excluded from 'Total Deposits' amount.
6. Last minute upgradation of certain big value NPAs also requires deeper scrutiny. Here, Rs.25 lakhs may be kept as the cut off point.
7. Finally, any entries posted during the last 2 days of the year but found reversed subsequently (barring genuine provisions) must also be examined.

If these conditons are imposed upon the banks, strictly enforced, carefully monitored and any deviation is seriously dealt with, the window dressing menace will come down drastically.

'Window Dressing' has spelt doom on many promising and talented managers and it has left a permanent shadow of doubt over their integrity too, for no fault of theirs.

India to tighten screws on banks' 'window dressing' of accounts-Times of India 4th June 2015

The government is set to overhaul annual targets for public sector lenders this month, ending a focus on size that has long encouraged banks to inflate their loans and deposits at the year-end to hit growth objectives.

 Banking and government sources said the new targets, to be discussed at meetings with top state bank officials this month, would focus on efficiency, with objectives set around return on assets, or return on equity, and controlling bad debts.

 Overhauling India's bloated and often sluggish state banks is critical for the government, which needs to rekindle credit growth to reboot an economy that remains slow to recover, even if official statistics have it growing faster than China.

The shift, the government hopes, will also put a stop to widespread "window dressing" of state banks' financial accounts at the end of the fiscal year, the time at which the health of their balance sheets is officially assessed.

 That practice, official data shows, moves billions of dollars in the last two weeks of March as banks boost loans and deposits — only for more than half to reverse in the first two weeks of April.

 This can threaten financial stability, analysts say, and could be obscuring the real state of India's financial sector, including the level of stressed debt.

 For many banks, "window dressing" involves accepting short-term loans or encouraging customers to draw down on credit lines at the end of the fiscal year, parking cash in their current accounts only to then reverse the move in the new month.

 Banking sources said some also encouraged consumers to shift their term deposits into the current account, then compensated them for lost interest.
 One finance ministry source said the government could consider punitive action to back up its push.

 "The whole incentive structure needs to be changed," said the finance ministry official.
 This year, data from the central bank shows the volume of loans made at the end of March that then reversed in April, an indication of "window dressing", hit levels unseen since 2012.

 Some 2.3 trillion rupees ($35.96 bln), or 85 percent of the loans raised in the last fortnight of March, reversed in April. Similarly, nearly 60 percent of the 3.3 trillion rupees ($51.59 bln) of deposits reversed.

 "We do not want banks to present unrealistic projections while signing annual agreements with the government," said a second finance ministry official who deals with state banks.

 "We are not going to allow any window dressing."
A certain kind of account
 China has also cracked down on "window dressing" by introducing caps on end-month deposits, but the practice remains pervasive in India, particularly among state banks that dominate the sector with more than 70 percent of loans - despite repeated admonishments by the government and the Reserve Bank of India.

 Central bank Governor Raghuram Rajan last year warned banks against creating a liquidity squeeze at the year-end by ceasing to lend to each other "to build a certain kind of balance sheet".

 "Window dressing" practices inflate the numbers on the last day of March, the date on which performance is measured. Analysts expect new targets to use average and quarterly measurements, rather than one day.

 "It is a matter of culture that runs from the bank branch to the top," said a senior policymaker.
 "If one person does it, then it becomes a relative thing when the other person also doesn't want to be left behind."

 Banks are also hurting themselves, senior officials said, as some push for growth even if it means they are also consequently forced to lend more to less profitable "priority sectors" - farming, or small scale industries, for example - as a result.

 "Currently the practice is to bloat the balance sheet both on the credit and deposit side at the quarter-end," said Arun Tiwari, Chairman and Managing Director at Union bank of India (UBOI.NS), who said his bank did not inflate its accounts.

 "But that also means higher numbers for priority sector lending which are tied to adjusted net bank credit and higher fees for deposit insurance. So the candle is burning from both ends."
http://timesofindia.indiatimes.com/business/india-business/India-to-tighten-screws-on-banks-window-dressing-of-accounts/articleshow/47544898.cms

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?

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.

Click Here To Read More On Window Dressing
Window-dressing of deposits by banks: Some truths-Hindu Business Line 23rd September 2012 -By M.R. Das                                           









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.