Sbioa News Bulletin
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SBIOA NEWS BULLETIN March - 2018 Stop The Blame Game Let RBI & Finance Ministry Own Responsibility Much is talked and written about scams in In what way the Chief Economic Advisor has the Banking sector after the Nirav Modi improved the economy? He is talking about Scam in PNB. Why RBI, Finance Ministry, Privatisation? Does he want to handover the CVC and others wake up only when a major Banks which have been looted by the scam surfaces? Why we are not analysing the Corporates to them so that they can loot failure of the system? What is the role of the more? Govt and its policies which cause system We need better banking, better reporting, failures and scams? better supervision and better technology in There have been Harshad Mehta Scam, aid of these. What we need is to ignore the cry Ketan Parekh Scam, and the NPA scam (not to privatise PSBs, as if ownership uniquely declared as scam by the Govt or RBI) due to determines ethics and efficiency. The misuse of the loopholes in the system. popular chestnut is that PSB are structurally In this case, when a Buyer's Credit is vulnerable to poor governance, resulting in available for importers why at all RBI the run-up in NPAs. Data, yet again, militate introduce Letter of Undertaking which is not against the hypothesis. in vogue among foreign banks? What was the While there might be cases of fraudulent necessity for RBI to encourage imports by behaviour, they are not the overwhelming helping the borrower to get cheaper credit cause for the accretion of NPAs in PSB. abroad instead of helping Indian Banks to Second, cases of governance breakdowns increase them credits which would give are not a monopoly of PSB — globally and in better taxes for the country? India, many privately-owned banks have It is a well known fact that the SWIFT has been regularly identified with such errors of been used for frauds from the nineties and omission and commissions. Global there are many reported hacks of SWIFT. regulatory fines on banks run into many Why RBI and the Govt did not intervene to billions of dollars every year. correct the system? The Economic Survey 2016-17 studied the What happened to Supervision and Audit? causes of the large NPA build-up in PSB. A Why RBI failed in supervision? Is it because very large part of it can be attributed to a RBI has been busy with other things like growth- induced credit bubble, followed by demonetisation? They are still counting the macro-economic and regulatory issues that notes ever after a year! Has RBI lost its burst the bubble rudely. Corruption and autonomy? malfeasance were not identified as a key Golden Jubilee 1965 - 2015 Golden Jubilee 1965-2015 SBIOA NEWS BULLETIN 2 variable. banking and sovereign crises between 1970 In 2008, a raft of European and American and 2011 brings out the data starkly. The banks, all privately owned, had to be bailed average fiscal cost of bank bailouts across out by governments. The list of institutions the world was 6.8% of GDP between 1970 bailed out included some of the bestknown and 2011. For emerging economies, the cost brands in the business. The financial crisis was 10% of GDP. For India, in the same of 2007-08 was the result not of public sector period, bank bailouts cost far less than 1% of sloth and corruption but of private sector GDP, a negligible amount. greed and poor regulation. Lehman The current PSB recapitalisation plan Brothers went belly up, without any state announced by the government, amounting to ownership. Royal Bank of Scotland and Rs 2.11 lakh crore over two years, would Barclays avoided collapse by taking account for less than 0.5% of current year government equity. It is not ownership but GDP, and less than 0.25% annualised for two the quality of regulation, reporting and years. Further, India's bank bailouts have management that determine banking extracted far less cost out of the Indian efficiency. economy than bank stress situations Closer home, privately-owned Global Trust elsewhere. Bank and Bank of Rajasthan had to be Despite a sticky systemic NPA issue with PSB rescued with state support. The reason for for five years, we have had no run on a bank, the above is quite simple — banking isn't the no stress in the money markets and limited same as soaps, or steel, or hotels. impact on growth. In India, the political economy circum- While there are many reasons for this, a big scribes the quality of regulation and internal reason has been state ownership of the control policies at banks. It is important to banking system. It has meant that bank appreciate this while fixing responsibility for liabilities have implicit sovereign guarantee, the bad loans and large frauds at public which maintained confidence of the markets sector banks. in the banking system. The TARP or Troubled Assets Reconst- The country is struggling with mounting ruction Program strategy of the US unemployment. The Banks have money but government to bail out US banks in 2008 they are scared of lending. They are investing cost approximately $800 billion. How much the funds in safe bonds where they are losing has the Government of India spent, over the interest. Net result is that the Economy is not years, on PSB bailouts? How does it growing. Employment is not increasing. compare with the rest of the world? Contrary What is needed is to have a relook at the to the popular narrative, Indian banks policies. It is high time to redirect credit (predominantly PSB) have required very towards Agriculture, Horticulture, Food little bailouts over the years, compared to Processing, small and cottage industries the rest of the world. which will increase employment. Both in terms of direct fiscal costs as well as 11,643 borrowers in the country have indirect costs to the economy, banking availed 38% of the total loans given by bailouts in India have been quite modest in Banking Sector as on March 2016. Just 12 terms of their impact. An IMF Working Paper NPA A/cs have an outstanding of Rs. on Systemic Banking Crisis, covering all 2,50,000 Cr. 84% of the NPAs belong to Golden Jubilee 1965-2015 3 SBIOA NEWS BULLETIN Corporates. Every year banks are writing off It could have been implemented after annual thousands of crores for this corporates closing. Who is responsible for the mid which is the biggest scam. FICCI and academic disruptions to the education of Assocham should ask them members to be children of the employees? honest and repay the loans instead of Why RBI is still hesitant to Publish List of demanding privatisation. Defaulters and allow them to run away from RBI is not willing to publish the list of NPA the country? borrowers. The RBI is the one which Why the Prime Minister takes with him the introduced CDR, SDR, S4, AQR and PCA. businessman on foreign tours who are None of them have helped the Banks but they known for misuse of the system/Why the have helped the Corporates to loot. With the same set of businessmen get contracts revised norms the Banks will have to declare abroad? Rs.2 lakh crores more as NPAs and provide Why these businessmen are show cased 50% provision for them. This is going to abroad and why they are selected by the PMO make all the Banks in the country to become & Finance Ministry instead of Industry red. This will lead to a financial crisis like the Associations which was the practise earlier? US crisis of 2008. The Govt may announce a Financial Emergency and handover Banks T h r e e i m p o r t a n t s t e p s a r e n e e d e d to the Corporates. This will be a danger to immediately to save the banking sector and Democracy itself. the economy. What is needed is reversal of the Economic One: Publish the names of defaulters of the policies, credit policies and NPA norms and Banks and ask banks to write to the home bring in transparency. Why accounts with Ministry to make entry in the passports of security should be provided 100% provision the Board of Directors of these Companies for NPA in two years? “Emigration Clearance Required” so that they don't run away like Vijay Mallaya, Jatin Why the present Govt has not appointed Mehta, Nirav Modi and Mehul Choksi. officer Directors and Employee Directors, in the boards of the Banks, which are Two: Have a relook at the NPA norms. Why all mandated by law? They have scant regards accounts which have a default of 30 days be for law itself. declared as NPA? Why not look at the reasons, scope for recovery, security etc? Why Banks are forced into other activities like Aadhar Linkage, Aadhar enrolment, Three: Appoint Officer Directors, Employee selling pension scheme of Govt, Cross Directors and Nominee Directors immedia- Selling which often is misselling? These are tely and allow them to play a watchdog role. major reasons for weakening supervision. Remove RBI Executives and Finance Ministry Officials from the Boards of Banks Why the MD of PNB was sent to Allahabad as they are Supervisors and they can't Bank and why another person was supervise themselves. It's time for a wakeup appointed as MD of Punjab National Bank? call. What is Mr. Vinod Rai doing in BBB? D.T. Franco Rather than fixing accountability from the General Secretary top why 18,000 transfer orders were issued ALL INDIA BANK OFFICERS' in a hurry? The CVC guideline can be CONFEDERATION implemented in a phased manner.