Saturday, March 10, 2012

Public and Private Sector Banks

Reality of stimulus package is now visible; Fiscal deficit is increasing , trade deficit is increasing, current account deficit is increasing and GDP is coming down, IIP figure is coming down, rating of banks is coming down rating of country is at alarming position and so on ….Borrowing by government has been consistently increasing, public debt has reached to the level of 46 lac crores i.e. around 40% of GDP. Still government is allowing one after other subsidies to big corporates, exporters and importers. 

Total subsidies , interest relief, and tax relaxation provided per year to high profile corporate comes to the tune of ten lac crores which is at least four times more than the total of subsidies provided to common men in the name of fertiliser subsidy or fuel subsidy.How can one dream of good results for common men when the present government continues such pro rich policies in the name of reformation. 

I do not know whether stimulus packages announced by our government after 2008 -09 subprime crisis for Indian corporates was meant for what it has resulted in. I may categorically say that the medicine politicians are prescribing to cure the fiscal problems are less than what they are doing to fuel the sickness, to add fuel to fire of problem.

Same is with public sector banks. They want youth power as if bankers have to fight on borders. They are opening branches after branches as state government did for spread of education and as government opened Thana after Thana, (i.e. police station) with a purpose to provide security to public. Government wanted to provide free education to poor children but parent do not want their children to be admitted in government schools. Similarly common men face injustice, torture, and exploitation and all but for God sake, they do not want to go to police station. God knows the reality.

Similarly good customers seldom like to bank with public sector banks even though they keep service charges lower than that in private banks. In only two decades of launching of private banks, banks like ICICI, HDFC and Axis bank has acquired more business than many PS banks who have been in banking business for 100 years.

Public sector banks are opening more and more branches to increase business without taking care of existing business. As a consequence new customers are added and number of accounts has increased in these banks but at the same time, not only number of dormant accounts is increasing at faster rate but number of zero-balance –accounts are also increasing.

Obviously good customers are added by Public sector banks but not sustained for long .Though public sector banks claim to extend good customer service and claim to have extended their reach to more and more common men, the reality is that they are slowly going away from good customers. People prefer private banks even though their service charges are more and rate of interest is greater than that in their competitors in public sector including top ranked bank called as State Bank of India. This is why despite the increase in number of branches; business per branch has not increased in public sector banks.

Similarly per employee business and per employee profit in private sector banks is greater than that in Public sector banks. Private sector banks open new branches with perfect number of manpower and complete set of infrastructure without affecting the existing branches. They keep ready new set of staff well prepared and well trained for prospective new branches. On the contrary public sector banks try to increase per employee business by curtailing manpower from existing branches and opening new branches with a one or two untrained, inexperienced, unskilled and undedicated manpower. Result is that quality and quantity of business is getting diluted and facing continuous downfall. Growth rate of business is lesser than that in private sector banks despite the fact that number of staff per branch is at least double in private banks than that in public sector banks.  

Though there are number of senior officers posted in the Department of Planning and Organization and also in the department of and Human Resource Department. They may collect data, information, inputs, figures, ratios from different angle of consideration but they do not have capacity to analyze them and take corrective action. Their main motto is to project the figure as the boss desire, they do not have courage to accept the bitter ground reality and present the same to bosses without manipulation. They all are flatterers of one or the other boss and they are trained to present only rosy picture, this is why they are totally unaware of field level deficiencies, shortcomings and irregularities in functioning.

Value and volume of Non Performing Assets (NPA), stressed assets and restructured assets has been increasing quarter after quarter but Gross NPA ratio or Net NPA credit ratio is not increasing as fast as it should. This is because banks are focusing on increasing growth on credit disbursal to reduce the ratio f NPA to Credit. When credit increases fastly, it helps in reduction of NPA ratio even if there is considerable increase in value of NPA.

From 1991 to 2010 officials of public sector banks resorted to concealment of NPA to show reduced NPA credit ratio to Ministry of Finance and to win the heart of investors. Now NPA is generated mostly in all top ranked PS banks and hence it has become somewhat difficult for clever bankers to hide NPA until they resort to tapering with machine and play fraudulent game with technology. On the other hand private banks started with advanced technology and they never resorted to hiding of bad assets but they focused their preferred attention on quality lending and forced recovery from willful defaulters, even though some politicians criticized them.

It is true that during last six months to one year, officials in public sector banks are also forced by their mentors to focus on recovery of dues from willful defaulters. This is why there is sudden jump in legal action, action under SARFACIEA and in cases of compromise and waivers. Of course there is phenomenal improvement in the efforts towards recovery of NPA in government banks and this is substantiated by number of possession notices appearing in Newspapers and increase in cases at DRT. But it has to be kept in mind that if quality and quantity of manpower in branches do not improve the pathetic position of bank’s asset will move from bad to worse and worse to worst. The speed of addition of new NPA is still greater than that recovered from old defaulters.

The most remarkable point is that most of high profile and powerful big bosses in government banks are surrounded by flatterers, manipulators, yes-sir speakers, and bribe earners whereas in private sector banks performers and only performers have say before bosses.

Those who work in private banks get jump after jump in career, rise in salary and amenities and increase in powers whereas promotion in government banks depends on flattery, bribery and yesmanism. There is no question of hike in salary of good performers because if this power is invested in government bank officials they will also be misutilised by greedy persons.

This is why irregularities increases in government run banks but bosses remain ignorant in most of the cases. They keep their eyes and ears closed when some critic dare focus on deficiencies, shortcomings and irregularities in the system. They think it wise to isolate such officers , post them in rural areas or at critical branches where such good officers become busy in quarreling with infrastructure and inefficient manpower or cry in depression in want of adequate manpower or fight with notorious elements of the area.

There is heaven and hell difference between the attitude and way of thinking of officers of private banks and public sector banks. However this is also true that the mistake which a banker commit today, its consequences are visible after three four years or even after a decade or two. Banks committed mistake in selection of good officers and good borrowers five to ten years ago, the consequences of their ill motivated decisions are not surfacing slowly and unfortunately the new generation boys are facing the music of bosses.

Bank management committed mistake of large scale branch expansion in seventies and eighties to meet the requirement of Service Area Approach of the then central government. But the bad result of the same became visible when baking reformation started in nineties. Many branches due to recurrent losses were closed, merged with other branch or made satellite branch. Again in the name of Financial Inclusion these government banks are resorting to rapid branch expansion to meet temporary targets of business but the future bosses of these banks will have to face the consequences.

When government talks of achievement of target set for lending and credit growth in banker’s review meeting, bank officials prefer lending to big corporate. This is why almost 50% of total advances in these banks is concentrated in top one hundred to five hundred borrowers. When government talk of target set for lending to priority sector and to weaker section, they classify big value loans to priority sector. When government talks of increase in agriculture loan, these clever bankers cleverly classify all village loan to agriculture loan.

As a matter of fact most of officers not only in banks but in all government departments are master in art of flattery , art of presentation of facts and figures, art of speaking from dias , art of garlanding ministers and top ranked officials, they know the tools of inauguration of branches and ATM through local powerful big guns, ministers and politicians ,they know how to please the bosses by rosy depiction of rotten picture and they know how to treat the bosses as per the will and inclination of individuals sitting at powerful position.

Indians are master in this art and hence they are best planners, best presenters but worst executors.

It is important to mention here that during last five years number of total staff in public sector banks has not shown any increase, rather there is reduction in total manpower due to retirement, resignation etc. On the contrary every PS banks has added hundreds of branches during the same period. As such number of staff per branch has sharply come down and it is from 5 to 10 in various government banks.

On the contrary private banks has not shown substantial increase in total number of branches and of course they have not opened new branches as faster as their counterparts in public sector and their per branch staff is more than 20 and even more than 50 in some exceptional cases. This is why per staff business and per staff profit in private sector banks is far greater than that in public sector banks.

Scale of frustration and gravity of weakness is public sector banks is so much alarming that that despite sharp reduction in CRR during last month from 6% to 4.75% and SLR from erstwhile 40% to 24% most of the these banks, specially SBI has declared 9% interest rate on Term deposit even for 7 days on wards. These banks were hitherto crying for increase in CASA and now they are ready to pay upto 9% even short term deposits. It is astonishing that some of the banks are still offering interest to the extent of 11 on short term bulk deposits. And so on ……………..

                Offices of Commercial Banks in India - 2007 to 2011
Bank Group
As on March 31
State Bank of India and its Associates
Nationalised Banks $
Public Sector Banks
Old Private Sector Banks
New Private Sector Banks
Private Sector Banks
Foreign Banks
Regional Rural Banks
Non- Scheduled Commercial Banks
All Commercial Banks

RBI's aggression in cutting CRR is unwarranted

he 75-basis-point reduction in the cash reserve ratio (CRR, or the amount of money banks need to keep with the central bank) by the Reserve Bank of India(RBI) late Friday evening was surprisingly aggressive.

The reduction, which follows a 50-basis-point reduction in the CRR just about six weeks ago, is expected to give a respite to banks by injecting approximately Rs 48,000 crore into the system. Liquidity has been tight for the past several weeks - the CRR cut effected end-January brought little respite - and is expected to get worse by the middle of the month due to advance tax outflows.

With banks already borrowing over Rs 1 lakh crore through the RBI's short-term liquidity adjustment (LAF) facility, clearly, there was a case to do something to prevent call-money rates from skyrocketing.

The issue, therefore, is not over the direction of the RBI's move. It is rather about the quantum and the choice of instrument used by the central bank to infuse liquidity. The governor and other top officials of the RBI have repeatedly stressed that the battle on the inflation front is far from over.

Oil prices are still high and the rupee is vulnerable. In such a scenario, an infusion of liquidity and on this scale is hard to justify. Until supply pressures ease - and there is no sign of that happening as yet - a large increase in liquidity is bound to feed into higher prices. A reduction in CRR infuses liquidity on a permanent basis.

Hence, CRR as an instrument of monetary policy should only be used to address structural deficits/surpluses in the system. Temporary deficits/surpluses are best addressed through short-term measures such as the RBI's LAF and the marginal standing facility. There is nothing to suggest the present tightness in the system is structural rather then temporary.

Inflation is still high and we are likely to see a fresh inflow of overseas funds thanks to the European Central Bank's aggressive loosening. In these circumstances, both the RBI and the aam aadmiwould have been better served if the central bank had tested the waters, eased gently and temporarily rather than aggressively and permanently. The government can help, by acting firmly on fiscal consolidation.


Miali said...

Brilliantly outlined all the ills plaguing the public sector banks. It is high time that, focus is shifted to 'quality and efficiency' instead of 'mollycoddling' in these banks.Keep it up.

Jackfruit said...

Great, the facts and figures presented here will immensely benefit the new recruits in public sector banks. Top Management thinks that younger generation is unaware of the rampant corruption in banking sector.
The criminal wastage of Human resources in public sector banks is certainly because of the reasons mentioned in this article. I would love to discuss ideas on finding solutions rather than waste my time discussing this facts further.