Tuesday, March 06, 2012

Performance Assessment of Banks

After 43 years of bank’s nationalization and 21 years of adoption of policy of liberalization and reformation launched in the year 1991,our government and our learned Finance Minister has realized for the first time, the bad consequences of imposition of targets for deposit and advances on CMDs of banks. It is undoubtedly and undeniable true that due to unrealistic targets there used to be unbearable pressure from seniors on field functionaries for its achievement.

And due to application of evil ways and means to reach nearer to target and due to unhealthy competitions among flatterer officers in reaching nearer to bosses, officials of banks during last three to four decades have in general lost a lot of its health, accumulated unimaginable volume of bad assets, created a gang of inefficient, non performers but cleaver, flatterer and corrupt workforce and eventually caused huge loss to the bank as also to its culture.
These top ranked officers could get the top post only and mostly by indulging in window dressing during their posting at branches or in the regions and it is they who used to teach same window dressing to their juniors and award only those officers who were clever in following their line of action even at the cost of overall health of banks. It is they who taught juniors to compromise quality in lending as also in deposits.

Bank officers who could manage illegal money in sanction of loans or through illegal ways and means could pay bribe in acquisition of deposits and also please their bosses to get timely promotion and best posting.

I feel pleasure that now MOF has wisely and rightly decided to remove deposit and advance target for future assessment of bank's performance.

MOF will now focus on profit, growth in Net Interest margin, non-interest income, financial inclusion etc. Of course this will result in healthy growth of deposit and advances also. Bankers will now pay their attention on quality of lending and low cost deposits to boost profit prospects.

Bank officials will not dare offering higher rate of interest on bulk deposits only to serve their self interest of achieving targets set by MOF.

After all it is public money which bank officials are supposed to manage for the betterment of society as also for the growth of bank and its depositors.

Gradually RBI and MOF will also realize that freedom given to banks to decide their own rate structure for deposits and advances is also causing damage to banks and creating unwarranted, unhealthy and avoidable competition among public sector banks .

Banks in general are managed by officers who do not possess adequate banking knowledge, who are inefficient, inexperienced, greedy, flatterers and corrupt officials and who focus more on self interest than on true health and future of their employer bank. As such unregulated freedom given to bankers resulted in corrupt practices and bad habits.

 I hope now at least CMDs of various banks will not indulge in window dressing of deposits and advances and in turn they will not expect window dressing from their juniors to achieve the unrealistic targets imposed on them for deposits and advances.

In brief I may say that by saying good bye to target for deposits and advances, MOF has now started beginning of end of bad culture and launching of new initiatives to attract true value to government sector banks.

I hope now policies and action programme in public sector banks will move in new direction and enter into new era and give birth to new culture and at least keep flatterers away from mainstream. 

And gradually erstwhile corrupt bankers will be forced to focus on recovery of bad loans created and accumulated by bad bankers they produced and concentrate on growth of real profit and discard habit of manipulation with financials and discard the habit of concealment of bad loans to earn good will of Ministers.

Last but not the least, Flatterers will no more get out of turn elevation in post and position and true bankers will get the chance.

Economic times  dated 06/07.03.2012

Finance ministry drops deposit & lending growth from performance target list for PSU banks

Sangita Mehta, ET Bureau Mar 5, 2012, 03.18AM IST

MUMBAI: CEOs of public sector banks can no longer rake in bonuses by window dressing year-end deposits and loan numbers. For years, banks have been mopping up bulk deposits from large clients in March only to return the money in the first week of April - transactions that prop up total deposit figures for March 31.
Similarly, deals are cut to give out loans to borrowers with an understanding that they would be repaid a month later. Smart customers borrow from one bank and park the money as a deposit with another PSU bank. The circular game helps banks dress up numbers and meet targets.
his practice will now come to an end. The finance ministry has dropped annual deposit and advance growth from the list of performance targets laid down in the annual MoU that all PSU banks have to enter into with the government. From now on, banks will have to focus on the remaining parameters like net interest margin, return on assets, NPAs, fee income, priority sector loans, financial inclusion,etc.
If a bank meets all targets that are set in the beginning of the year, then the chairman and CEOs receive a bonus of 8-lakh each. According to a senior banker, the finance ministry, in a letter to all PSU banks, said, "It has been felt that banks are under pressure to mobilise deposits to meet the statement of intent targets and this may lead banks to secure high cost deposits which may affect the health of banks."
The exclusion of deposits and loans from the list of performance targets will impact the money market as well. AMCs that make a killing by parking bulk money with banks at higher rates will have to look for other investment avenues. Last week, a number of banks raised money in the range of 10.85-11.10%.
P&S Bank agreed to pay 11% for a 700 crore 3-month certificate of deposits. IDBI Bank raised 4,000 crore at 11.10-11.15% and Corporation Bank raised 2,500 crore at 11.10%. Such interest rates for short-term bulk money rose 125 bps since the RBI cut CRR in January.

Banks have been doing this for decades. It's a customary practice and an open secret. The government has raised the issue when banks are battling liquidity crunch and a rise in sticky loans," said an analyst.
The ministry seems to have taken the issue seriously. The letter adds: "Also, it is felt that banks are compelled to go all out to achieve target on credit.
Sometimes PSU banks may compromise on quality of the loan proposal to achieve target for the advances which may result in higher NPA leading banks to make high provision.
It has been decided to drop the percentage growth in deposit and advances and market share parameter from the SOI."
Some bank treasury heads are happy with the directive. Among other responsibilities, the treasury department has to manage a bank's net interest income, interest rate risk and asset-liability mismatch. In the past, treasurers had objected to top managements' decision to meet targets at the cost of margins.

1 comment:

Subodh Kumar said...

The issues raised here truly reflect the internal position of PSUs. This is high time for the Govt. to intervene immediately and create a healthy, transparent & competitive environment among bankers.