But in my opinion, Ministry of Finance as well as Reserve Bank of India are far away and totally ignorant of how to improve the real health of PS banks. Either they do not know the art of curing banks or they do not want to do so as a strategy to use banks to serve political interests. They are rather adding fuel to fire and causing more damage to already sick bank. They are suggesting all such steps to improve the health of banks which have played key role in making banks sick .They used to say that the will not interfere in functioning of banks but they continue to interfere.
In my view , GOI or RBI cannot ignore control on banks , not because they are key owner of banks but because of the fact that banks were nationalised to save common men from exploiter money lenders. GOI will have to interfere in functioning of banks when bank officials misuse powers delegated to them.
Government have to use banks for poverty alleviation programme, for creation of employment opportunities, for giving various financial help to poor people, for extending credit to priority and neglected sector ,for helping weaker sections of the society , for extending credit for growth of infrastructure , power sector and so on. As such it is the duty of Ministry of finance that banks wholeheartedly execute the policies of lending and policy on interest rate in true spirit, uniformly without any discrimination. GOI will have to learn to punish officials who are corrupt, who exhibit negligence and who are ill motivated in taking decisions.
Unfortunately GOI has completely failed to keep watch on individuals working in banks as bank's Chief . Until GOI punish erring officials , they cannot inculcate good practices in banks. And for this , politicians will also have to be honest, sincere and transparent in their actions.
It is sad that they failed to stop rising corruption in recruitment, promotion and posting. They failed to punish top officials of banks who misused merit oriented promotion policies for self interest .
They failed to stop and punish top bankers who used power of posting to create a culture of bribery and flattery in banks .
They failed to stop top officers of banks recruiting from campus their own kith and kin in the name of talent.
They failed to stop bribe led lending done by bank officials.
They failed to stop exploitation of banks by corrupt politicians.
They failed to punish bank officials and administrative officials who have been found to be indulged in corrupt practices for self interest and who have failed to take appropriate step in protecting of bank assets and taking suitable steps against erring borrowers and erring officials.
They failed to punish officers, judges, advocates, legal experts, district magistrates, superintendent of police, BDOs, associated with courts and administrative offices who for serving their self interest and for earning bribe and commission continue to postpone actions for years and decades on cases pertaining to recovery of loans from defaulters.
It is they who damaged the repayment culture in banks by suggesting loan waiver culture.
It is they who forced banks to distribute loans like charity by organising Loan Melas and Credit Camps.
It is they who suggest bankers to restructure loans if borrowers face genuine difficulties in repayment of loans . But they fail to stop misuse of such relaxation by corrupt bankers to hide bad loans sanctioned by them or their friends in higher posts to earn illegal money either in cash or in kind.
In brief one can say without any hesitation that it is RBI and GOI in particular and politicians in general who have caused all sickness in government banks and it is they who have extended all helps to private bank.
Politicians are more concerned with their vote banks and their fate in elections. They can sell the banks as pervious FMs sold to enrich their vote banks. They appoint Directors or ED or CMD in banks as per their whims and fancies and thus oblige their fellow leaders in the political party which rule the country or a state.
When post of ED or CMD is sold , these ED and CMDs use the same culture for promoting an officer from one scale to other. When they give bribe directly or indirectly for getting cream post , they apply the same tool to earn wealth not only in recruitment and promotions but also in lending and in awarding any contract for supply of goods and services. They use the power to earn money in writing off of loans and in sacrificing good money to please bad borrowers.
And to add fuel to fire, auditors, inspectors, vigilance officials ,inquiry officials etc who are supposed to take action against erring officials are also chosen from gang of corrupt officials and thus they help corrupt officers more and earn money in saving corrupt officers from punishment.
There is no remedy when protectors become destructors. The great writer Munsi Prem Chand told long ago that "Jab rakshak hi bhakshak ban jaye to vinash nishchit hai" . It means to say that when protectors and regulators of banks become damagers , no power on earth can save banks from disasters.
None of the policies are bad in banks . It is never a question of rules or policies which has hurt bank. It is always the people who have hurt the bank more because it is people who are supposed to execute them in true spirit more often than not, use the rule and policies or twist the rule to earn illegal money , to earn name and fame and to get out of turn promotion .
Fixation of target for credit growth is not bad but it becomes bad when people do so under pressure or with ulterior motive to get undue benefits .
Campus recruitment is not bad if really talented people are recruited. Problem arises and get aggravated only when in the name of talent , weak candidates are given chance to earn illegal money or to give favour to kith and kin f friends and relatives.
Arun Jaitley to Meet PSU Bank Chiefs -Indian Express-11 March 2015
NEW DELHI: Finance Minister Arun Jaitley will meet the heads of public sector banks (PSBs) on Wednesday to review their performance, particularly with regard to passing on the Reserve Bank of India's recent interest rate cuts to borrowers.
"During the meeting, the finance minister will review the public sector banks' performance with regard to overall credit growth," a finance ministry release said on Tuesday.
"The finance minister will also review the performance of PSBs and financial institutions (FIIs) with regard to the new projects and proposals, stalled projects and possible remedial measures among others," it added.
Jaitley will also review the banks' performance in their handling of non-performing assets (NPAs) or bad loans, the ministry said.
The RBI has cut the repo rate at which it lends to commercial banks by 0.5 percent in the last two months, but the banks have not followed up on that yet by reducing their lending rates.
Last week, the RBI reduced the repo rate from 7.75 percent to 7.5 percent. This was the second rate cut after January 15, when the central bank had also cut the rate by a similar 25 basis points.
At Wednesday's meeting, Jaitley would also review the progress made on decisions taken at the two-day Gyan Sangam bankers retreat held in Jamuary in Pune.
The meeting would review various key financial sector issues such as credit offtake in the economy, priority sector lending, and progress made under the Pradhan Mantri Jan Dhan Yojana (PMJDY).
Prime Minister Narendra Modi last year launched the PMJDY scheme for promoting financial inclusion. A record 13.6 crore bank accounts have been opened under the scheme.
Bank Board Bureau to consist of experts, one FinMin representative-Indian Express
As the government tries to professionalise the management of public sector banks, the proposed Bank Board Bureau that would be responsible for appointments at state-run lenders will consist of former bankers and experts along with a single finance ministry representative. The proposed agency would also guide banks on mergers and consolidations.
“The idea is that the government as owner should not directly be supervising the work of banks. So it is an arm’s length kind of mechanism. The Bank Board Bureau will work as search committee or appointments board and will consist of professionals with only one government representative,” said Hasmukh Adhia, secretary, department of financial services. According to the plan being finalised, the proposed Board would have six members with at least three former bankers, two professionals and secretary, department of financial services as the government representative. “The chairman also will be an ex-banker,” Adhia told The Indian Express.
This would be a shift from the existing system where in appointments for top jobs at public sector banks are made through an appointments committee led by the Reserve Bank of India Governor.
However, appointments for the posts of managing director and CEO at five state run lenders — Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank and IDBI Bank for which the finance ministry has already advertised would be done through existing system.
“By then the Bank Board Bureau will not be set up. It will take some time,” said Adhia. Finance minister Arun Jaitley had in the Budget 2015-16 announced setting up of Bank Board Bureau that would improve governance of public sector lenders.
“The Bureau will search and select heads of public sector banks and help them in developing differentiated strategies and capital raising plans through innovative financial methods and instruments,” he had announced on February 28. In its second phase, “once it develops credibility, it can start looking into the strategies of various banks, they can give guidance to banks if they require,” Adhia said. Recommended by the PJ Nayak committee on improving corporate governance in banks, plans to set up the bureau was also discussed at the finance ministry and bankers’ retreat at Pune in January this year.
Will the new RBI rules on bank loans prove to be a lender bender? -Economic Times
Like many things that happen only in India, for years Indian banks have been following a practice that lenders in other countries don't. They rejig loans of troubled borrowers — charging them lower interest, allowing them a longer repayment time — to save the loan from turning bad and protect the bank bottomline.
The beauty of the arrangement is that banks have to provide very little — meaning, they have to set aside a smaller amount — for such "restructured loans" as compared to the much higher provisioning specified for bad loans, better known as non-performing assets, or NPAs.
After April, banks can no longer resort to this comfortable book-keeping. Since there will be no difference between NPAs and restructured assets, banks will have to set aside 15% of restructured loans as provisions as against 5% they do now.
The annoyance among bankers, who have been under the spotlight for mounting bad loans, is understandable: higher provisioning means lower earnings, and, the quality of their loan book will look worse than what appears now. The fear is that if growth fails to take off, there won't be too many other earning avenues to make up for the loss.
THE GENESIS
The new rule owes its origin to reforms that followed Manmohan Singh's first budget. On April 27, 1992, the Reserve Bank of India (RBI) asked banks to treat all restructured loans as problem loans, thus attracting higher provisions. The idea, back then, was to be be in line with international best practices.
A decade later, when large financial institutions like ICICI and IDBI were planning to become banks, these lenders lobbied for a change. They argued that many projects were stuck due to external factors like delays in clearance from various state and central authorities and even promoters who were willing to service loans were unable to pay as cash generation had been delayed by time and cost overruns.
Around the same time, enviroental issues in special economic zones had cropped up and land acquisition for several projects hit a roadblock. Faced with these ground realities, RBI agreed to change the norm. According to the revised rule, restructured norms were no longer classified as problem loans. In one shot, provisions on such loans fell to 2% from 10% (that applied to NPAs then). RBI coined a new basket for such loans: "restructured standard assets".
POSTPONING THE PROBLEM
The rule relaxation however, came with some guidance. "Banks," the new rules said, "can undertake restructuring if in their opinion the bottleneck in achieving regular commercial production was of temporary nature, not indicative of any long-term impairment of the unit's economic viability and if the unit was likely to achieve cash break-even if some time was allowed."
Soon many banks, desperate to show improved balance sheets, began to ignore the advice. Between March 2002 and 2013, banks' loan book grew by 779% to Rs 59,89,182 crore while the portfolio of restructured loans grew by 3,087% to Rs 3,13,003 crore.
Analysts say a predominant number of loans were restructured without looking into merit. Due diligence was slack and often project viability was not scrutinised. Indeed, RBI, in its annual inspection of banks, observed "banks lacked clarity" while restructuring advances. The regulator feared 25-30% of the restructuring would fail to turn around. Questions were raised in RBI on whether banks had the cushion to absorb the shock if some of loans sank.
When the share of restructured loans overtook that of problem loans, RBI stepped in. Addressing the media, RBI governor Raghuram Rajan recently said, "It's important we clean up bank balance sheets and show what they actually contain. That will enhance confidence in bank balance sheets and enable banks to raise the much needed fresh capital. In order to build confidence in bank balance sheets, we have to come to an end of forbearance It is to call a spade a spade."
It was an open secret that many loans were restructured simply to postpone the problem. Troubled promoters with high leverage and ambitious projects were given a long rope. By chipping in as little as 2% of restructured debt as extra equity from promoters, these borrowers bagged concessions on interest rates and one to two years of repayment holiday.
In 2013, RBI brought back the old rule of the '90s. It spelt out that the moment a loan was restr ..
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