Tuesday, July 05, 2011

Incorrect Data leads to incorrect conclusion



I am happy that RBI governor has ultimately accepted the bitter truth that baffling data given by various agencies are not reliable and hence the conclusions arrived at on the basis of such cooked up data leads to formation of wrong policies and failure in execution of plan .Last month Mr. K Chakraborty Dy Governor of RBI had also admitted that health of Bank assets is not as good as projected by CEOs of various financial institutes.He further admitted how financial data changes after change of chief of the bank and how profit of branch of a bank does down and Gross NPA of that branch goes up after change of Branch Manager of a Bank.

I am happy because realization of bitter truth can only force the policy makers to introspect into their working style,to assess performance of various banks,to take corrective steps , to punish bad bankers, to frame effective HR policies, to give justice to rejected officials who are not flatterers of their bosses and so on.

In one of the report published by RBI it is said that total of Non Performing Assets in Public Sector banks in India is likely to remain maximum 3% of total advances. I fully differ with this conclusion . I suggest RBI to demand report from all PSBs in format given below and explained in between to know the real truth of health of the bank and to know how corrupt executives sitting at top posts are manipulating the system and cheating with not only with the investors but also endangering the very survival of the banks.

Name of Bank
Name of CMD and ED
Number of Branches
Number of Regions or Circles or zones
Number of branches zone wise
Number of branches where Total amount of NPA is more than 50% of Total advances
Number of Branches where total NPA and stress assets is more than 30% to 50%
Number of Branches where NPA total and stressed asset is more than 10% of total advances
Name of Region or circle or zone of a bank where more than 20% of branches have more than 20% or 10% of Total advances.
Name of region or circle or zone where more than 40% of branches are having more than 20% or 10% of total advances.
Name of Person who is in charge of critical ill or almost dead Branches
Name of Regional Head where more than 25% of branches are critically ill
Name of DGM, GM, ED and CMD where more than 20% of region are showing critical regions.
RBI can devise tabular format as per suitability. In the beginning RBI may select top five banks or select on random basis 20% of total branches which are older than five years for thorough scrutiny.
Name of the Branch Heads, who have spoilt two or more than two branches during their posting at branches.
It means name of Branch Head whose advances have turned bad in most of the cases.
Similarly Name of Regional Head who selected maximum number of corrupt Branch Head during their posting as Regional Head.
Name of DGMs and GMs, who have promoted maximum number of corrupt Branch Manager to higher scale after taking bribe or gifts.
Name of senior officers against whom several allegation have been leveled and still they have been elevated to upper scale by controlling top officials, on the basis of recommendation of some friends, top boss or colleagues.

Moreover Character of individual who is head of such critically ill branch must be assessed. His past performance should be investigated, his linkage with higher officials should be traced, his assets and liabilities should be assessed, role of top officials must be assessed to know how much they got as share of illegally earned money by branch head , CBI should conduct investigate how much has been the role of bribe in credit sanctioning at branch level or regional level , legal or manpower constraints faced by the branch and how much money has been paid by branch head to members of Interview panel or to officials of controlling head office in getting promotion or in getting good posting.

Similarly if 10% of branches in any region are having more than 50% of advances as NPA it may be said that Regional Head of that branch is having poor monitoring and having malicious intention and such Regional Head have been given promotion in the past through unfair means, through back door and through recommendation of some top officials.

If more than 50% of branches is having more than 10% of advances as NPA, it may be said that there is lack of control on branches under his supervision and there is role of bribe in keeping silent on evil works of branch officials.
If more than 25 % of branches are having more than 20 % of total advances as NPA there is complete failure of monitoring tools and there is greater role for corrupt officials in promotion and posting.
If more than 25% of branches are having more than 30% of advances as NPA such regional Head may be categorized as the most corrupt Regional Head.
In this fashion RBI may devise its own framework to decide branch wise and bank wise health of public sector banks.

What I mean to say ere that RBI must conduct branch wise analysis of every bank to assess and ascertain the real health of the bank. Only by making bulk advances and opening new branches or by writing of bad advances time and again or by concealment of bad advances any bank in India cannot safeguard future of the bank. Only by knowing the true story of each bank RBI can strike at the root cause of ill health of the bank which may be any one or all of following

Flattery and bribery based recruitment, promotion and posting of officials
Legal constraints due to which banks are unable to recover money from defaulters
Manpower shortage, poor salary package, poor monitoring, poor knowledge, out of turn promotion causing frustration among subordinates, recruitments of direct officers in scale III or IV or V on the recommendation of top ranked officials of the bank humiliating senior officers of good past record available in banks and so on
Political reason like loan waiver announced by various state and central governments leading to disastrous culture ,forced compromise formula imposed by RBI or politicians giving verbal orders promise made by local leaders that loan will be waived sooner or later
Global reasons such as financial crisis all over the world, war on the border, global recession etc
Election eve concessions given by various political parties and so on

Name of Branch
Excluding branches opened during last three years or say two years or one year. Total advances
As on 30.06.2011 minus
Credit disbursed in last three years or two year or one year Total NPA Percentage of NPA Health Index
Branch 1 May add stressed assets, restructure assets, rephrased or rescheduled assets Sick, critically ill ,almost dead, fit for closure etc
Branch 2
Branch 3
Region 1
Region 2

Bank A
Bank B

Similar tabular statement may be asked from each bank region wise to assess the performance of various regional heads such as GM, DGM, RM etc and performance of bank heads such as ED and CMD.

Role of ministers and top RBI officials in the process of selection and appointment of ED, Director and CMD of a bank may also be looked into to know the truth that corruption flows from the top and not flows up from bottom to top.

Where lies the root cause of sickness of any branch or bank need to be ascertained as soon as possible to safeguard banks in India and it is wise not to believe entirely on financial data furnished by various clever bankers in different format.

Need of the reformation era is to punish bad bankers as soon as possible, even to those who is retired from ban leaving behind large amount of bad assets and to demote ill motivated top ranked officers to demonstrate the effectiveness of monitoring mechanism and to send a clear message down the level that those who indulge in bad or bribe based lending, bad recruitment, who are involved in bribe based promotion and bribe based posting will not be spared in banking industry.

Here it is worthwhile to mention that in the recent past financial report of SBI faced drastic change, sharp rise in NPA and sharp fall in profit just after change of Chief of the bank. Similar situation takes place more often than not in the branches after the change of Branch Head As long as Bank management will continue to provide shield to corrupt officials and adopt hide and seek policy bank as a whole will continue to face erosion in health and incur loss after loss,

It is therefore desirable to nip in the bud and take corrective steps before it is too late. In USA more than 100 banks were closed after the collapse of Lehman Brothers and after financial crisis of 2008. As a matter of fact the so called financial crisis occurred only due to lack of proper monitoring by regulators in USA

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