Wednesday, September 08, 2010

Banking Reform

Reformation in Banking has brought about some changes in banking policies. Deregulation of Interest is one of such prominent changes which have come into force (except savings deposits) after 1991. And deregulation is still in focus as regards interest payable on savings deposits.

In post reformation era, Banks offer higher rate of interest to bulk depositors for short period and pay lower rates of interest on deposits made by retail depositors even if they keep it for long period. Normally banks define deposits as retail deposit when the amount is less than fifteen lacs rupees and say it bulk deposit when the amount is in hundreds of crores or at least more than five or ten crores.

It means higher the amount of deposits; the higher is the rate of interest on such deposits. In brief banks now a day want increase in business, by hook or by crook and which is possible only with the deposits from giant businessmen. Banks in fact do not give much importance to small depositors; say poor or middle class savers.

Similarly banks offer the lowest rate of interest on lending to big traders, corporate, builders, industrialists any kind of rich businessmen or professionals who avail advances in hundreds of crores from. Banks used to extend sub PLR rates on such lending to rich people before base rate regime. Total volume of sub PLR lending constitutes not less 70% of total lending made by banks. After the introduction of system of Base rate from 01.07.2010 banks offer base rate which ranges from 6.5 to 8.5% to such rich clients. Banks have devised shortest procedure for such large lending which can be sanctioned and disbursed in the minimum time period say even hours or a few days.

On the contrary, small traders and professionals who avails finance from a few thousands to a few crores of rupees from banks have to pay higher rate of interest ranging from 12 to 15 % on advances they avail. It is obvious banks prefer big clients in banks and ready to offer all concessions to them whereas they try to get rid of small borrowers by charging hem higher rate of interest and delaying even the process of sanction , documentation and disbursement to all possible extent.

Not only this, banks also offer huge concession to rich businessmen. Rich people do not have to pay for issue of cheque book, for account statement, on cash deposits, on cash payment, for purchase of Demand draft or for remittance to other banks or other branches under RTGS or NEFT system. On the contrary small depositors and middle class businessmen and professionals have to pay for all such transactions.

In short we can say that after the introduction of liberalization, privatization and globalization in the framework of reformation banks give preferred treatment to rich people and sub-standard treatment to poor.

In the name of reformation, not only small customers have to suffer, even employees working in he banks have to suffer. Employees have to work at least for 10 o 12 hours a day whereas it was fixed 6.5 to 7 hours before 1991 when new era in banking started. Employees cannot get sanction of leave in easy way. Business of banks has increased more than fifty times after 1991 but manpower in none of PSU banks have seen increase during the same period.

Inspite of sharp increase in volume of non banking business there is negligible rise in number of employees in any government owned public sector bank. It is only private banks which have increased volume by increasing manpower in their branches. And this is one of the various reasons that even quality of assets in public sector banks has suffered huge erosion during last 25 years.

Of course banks are able to decrease Net NPA Ratio or Gross NPA Ratio of bank with the help of sharp rise in total advances through bulk lending at sub PLR rates to giant clients. Efforts of banks during reformation era are directed to increase total advances to decrease net NPA or Gross NPA percentage and in his way banks need not bother for sharply and dangerously increasing quantum of bad advances in all banks.

In brief banks are earning profit either by exploitation of staff or by interest rate management or by loading all charges on small and middle class servicemen, professionals and businessmen. It is remarkable to mention here that banks are not in a position to pay pension to its own retired employees.

Even Chartered Accountants are managed in manipulation of balance sheets and in management of prudential norms or classification of assets and that for income recognition norms prevailing in banks during reformation era. Rating agencies are even managed o portray excellent picture of the bank.

One cannot predict America type sub PLR crisis in India in immediate future but one can safely say that banks are no more accessible, affordable, comfortable and beneficial to common men. Even unemployed youth do not find any charm in getting the job in a bank.

This is the effect of reformation in banks introduced by great economist and greatest reformer like Manmohan Singh; beloved, clean, honest, hounourable and respectable prime minister of India.

Time has come to assess and compare the utility and benefits of deregulation and freedom to banks for common men. Time has come to make a comparative analysis of GDP growth, Industrial growth, agricultural growth, pleasure of majority of Indian people and overall need of India during three periods, namely pre nationalization, post nationalization and pre reformation and finally post reformation period. Time has come to decide whether regulation of banks is more suitable to India or deregulation put into effect by RBI and Government of India to compete with developed nations of the world.

Danendra Jain

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