NEWS & ADVICE : PERSONAL LOAN
RBI does not favor revision in NPA provisioning norms
By Vaibhav Aggarwal
Jul 29, 2011
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Regulator Reserve Bank of India has indicated no change in the NPA provisioning norms sought by banks from it. Rather the apex bank has decided to handle cases on specific basis, said senior RBI officials.

"There is enough flexibility in the existing guidelines pertaining to the commercial operation date. Specific cases can be examined but it cannot be left open-ended," said deputy governor Anand Sinha.

"If commercial production does not start on time, then the viability of the projects comes into question. Also, long-term projects are financed on floating rates and that is another source of risk. Banks should be able to identify these risks well in advance," Sinha added.

According to present guidelines set by RBI, in case an infrastructure project for which term loan has been disbursed by a bank does not start operations in two years time, then the loan has to be considered as NPA. In case of non infrastructure projects, the time period is 1 year.

"No other regulator does it, so why should we link it to the commercial production date. There are signs of pressure on the asset quality, and we took up with RBI that there was a need to revisit NPA identification and NPA classification norms," said Pratip Chaudhuri, Chairman, SBI.


 


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1. I salute RBI deputy governor Mr. K C Chakravorty , in charge of banking supervision who has openly expressed doubt on integrity of CMD and ED of public sector banks. He asked for more consistency in financial reporting of banks. He said yesterday that financial reporting should not be as per minds of bank ‘s chairman . When Bank chairmen change profit tends to fall. Mr. Chakravorty has substantiated his observation by citing example of few banks like SBI, Bank of Baroda .Bank of India and so on. He further said that the issue s not standardization of reporting system but to examine the integrity of information need in financial reporting.

I salute the editor of the valued Newspapers who have given prominent place for such news in edition of 7th June 2011. I am at least not astonished to read the views of RBI deputy governor because I have been writing similar views since long. It is true that views of laymen like me are not published. Since RBI deputy governor has expressed doubt on integrity of CMD of banks, the esteemed newspaper thought it fit publish the same on front page. Anyway I am pleased that there are some few people sitting at top posts who at least realize the bitter truth of corrupt system prevalent in banking sector. I am happy that RBI governor has pointed out the accusing finger towards chief of public sector banks. If he dares to look into ugly shape of various branches of top ranked banks, he will find that the position of branches , at least seven out of ten branches is much more stinking and dangerous for survival of the bank.

I fully agree with the views of RBI deputy governor that financial reporting changes after change of Chairman of that bank. I simply add that bad health of a branch is also visible only when head of the branch changes. It has to be kept in mind that financial report of any bank is nothing but sum total of financial report of its branches. As such when integrity of financial report of a bank is doubtful , it gives the undeniable message that financial report of its branches are doubtful and hence need thorough and inspection and investigation.

Need of the hour as such is to punish the person who promoted bad culture, who indulged in bad lending in banks and who caused huge loss to the bank directly or indirectly even if he or she is retired and at the same time bring sidelined officers back into mainstream to provide safety to ailing bank as soon as possible.


I suggest RBI deputy governor to take stern action against a few CMD of top banks who failed to maintain sanctity of financial reporting , who played fraud with system , who manipulated balance sheet, who indulged in bulk financing to increase credit deposit ratio, who indulged in window dressing in deposits, who did not make adequate provisions for pension and gratuity, who willfully sanctioned huge credit to unscrupulous corporate houses, who promoted bribe led lending by giving verbal and telephonic instruction to his subordinate General Managers and Deputy General Managers, who promoted the culture of hiding bad assets and thus who postponed recovery action on bad borrowers and punitive action against corrupt subordinates officials who in writing recommended sanction of loans to bad borrowers, who promoted bad culture in recruitment , promotion and posting of officers, who gave out of turn promotion to corrupt officers to promote bribe culture, who sidelined good officers or used good officers to clean the branches spoilt by flatterer bad officers, who promoted fraud culture in reporting of financial reporting, who by verbal orders instructed field functionaries to play fraud with CBS system and conceal bad loans to avoid provision for bad loans and to inflate profit etc.

RBI governor has to demonstrate his good intention by taking stern punitive action against Chairman of such banks whose financial reporting has not only tarnished the image of that bank and regulating agencies but also cheated the investors who believed on financial results and put money in shares of such banks. Chief of such banks whose action has caused huge loss to the bank in subsequent years must be brought to task even if he or she is retired from services .
I would like to mention here that every CMD and ED of each bank has a few, not all, general managers around him whose work is to flatter the boss, earn bribe through various ways. Collect gifts from his subordinate Deputy General Manager, assistant general managers while sanctioning loans to such bad businessmen who can afford giving big amount of bribe .It is necessary to point out here that such top ranked officers used phone call to get their evil work done These general managers share such ill earned money with ED and CMD in various ways. It is open secret that any GM, DGM or AGM or any executive cannot dream of becoming ED or CMD of a bank until he or she spends 25 to 50 lacs of rupees in getting the support of various members of interview panel who are empowered to select the person for the post of EC and CMD of a bank in public sector. When corruption is unavoidable at top post it is but natural this corrupt culture percolate the down the line.
Regional Head or Zonal head of a bank has liberty to pick and choose officers of his or her choice for posting at various bribe-potential branches, he has the power to whimsically promote an officer to higher scale or reject an officer in promotion process, he has the power to sideline honest officers to remote places when there is chances of such officers raising voice against corrupt activities of regional head. In such environment it is but natural that officers tend to become number one flatterer to his boss .Every officer in bank knows very well that if flatters to his boss and share his ill earned money (earned through bribe) honestly with his boss, gives costly gifts to his boss and his family and if he extends red carpet welcome to his boss during his visit to the branch, his promotion and good posting is guaranteed. On the contrary he also knows very well that performance is not the weapon which can ensure elevation in career. This is why flattery and bribery culture is spread in Public sector banks like cancer.

It is not an exaggeration to say that just like CMD and ED of a bank each Regional Head or Zonal Head or Circle Head has a few Branch manager say five out of ten who have got Doctor degree in art of earning bribe in sanctioning of loans, in contractual work, in supply work, in recruitment, posting and promotion of staff and in all financial transactions. Such corrupt branch managers and senior officials are master in art of speaking and toeing the line of bosses and extending all unwarranted services to even family members of Regional Head. These junior level officers earn money through lending and purchase deposit from government officials. If a branch manager is ready to pay a few thousands and a few lac to government officers he can get deposit in crores of rupees. When deposit increases he can sanction loans and earn bribe without any objection from controlling offices, vigilance officers and auditors. Because such corrupt officers know the art of managing Chartered Accountants, Internal Auditors, RBI inspectors, CBI officials, vigilance officers and all who are potential danger to his corrupt deals.

It is not that financial reporting of a bank changes after the change of CMD or Ed of a bank. True fact is that fate of most branches changes when head of branch is changed. Bad advances sanctioned by such corrupt officers are not treated as Non Performing Asset as long as he remains posted in that branch or as long as regional head of the branch who is also beneficiary of bribe directly or indirectly is changed. Financial report of such branch changes after change of branch manager. This is why NPA reported by such branches exhibits quantum jump in ratio when corrupt team of officials are transferred to other states. Even then team of corrupt officers sitting at central offices try their level best to protect such corrupt officers and leave no stone unturned to close the files against such corrupt officers containing serious charges of lapses and corruption against erring officers Rather they choose some level junior officers to clean the malady accumulated by corrupt officers and ultimately such junior officers are made scapegoat .This is the culture of public sector banks.

It is not therefore surprising that quantity and ratio of NPA in each bank has been rising every quarter. Profitability of every bank is at stake in the hands of such crooked officers who are holding top posts. There are numerous branches in each bank where NPA percentage is more than 20 percentage to more than 50 percentage of total advances of that branch. Heads of banks are saving their image by resorting to bulk financing at the fag end of each year or by selling their NPA to other financial institution or ARCs or AMCs. How long such manipulation in financial data will help in keeping bank alive, only God knows.

dkjain49709@rediffmail.com
DANENDRA JAIN (Posted: Jul 31, 2011)
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