Monday, July 09, 2012

Increase Profit BY Decrease in CRR is the New Mantra for Bankers

People of India or Government of India may agree or disagree, Health of Public sector banks is undoubtedly not good. 

Volume of Non Performing Assets (NPA) in these banks which were willfully concealed by clever executives and hence hidden a few years ago has now been exposed by 'RBI directive asking banks to ensure that the process of system generated NPA identification is completed by March 2012 .

Due to this all banks have now to make higher provisions towards bad assets. Besides they have to make provisions for restructured advances and standard advances too and also they have to maintain enhanced NPA coverage ratio. 

As a result profitability of all such banks including top banks called as State Bank of India is under acute pressure and most of banks were and are almost on the verge of slipping from Profit to Loss zone.

After retirement of Sri O P Bhatt from the post of Chairman and Managing Director of State Bank of India, new successor Sri Pradip Choudhury came out with a new strategy to earn profit. He built pressure on RBI and Ministry of Finance  to reduce Cash Reserve Ratio (CRR) which directly helps banks not only in increasing liquidity but also gives an opportunity to earn interest on portion of Zero-Interest fund released by RBI after reduction in CRR.As a result RBI has lsashed down CRR in recent past to a great extent.

IN last two decades banks earned profit by exploitation of bank employee and now trying to earn profit by release of interest free fund parked with RBI as per CRR norms. This indicates the inherent weakness of all banks in public sector despite all good news given by these clever media in print and TV Media and also to MOF. After all it is not an easy job for media men to understand the intricacies of bank's profit and the hidden bitter truth.

 It is worthwhile to mention here that these banks did not make provision for their employees towards pension and other terminal benefits. In the year 2010 -11 banks were exposed by some bank officers when they were cheated by IBA in the name of grant of 2nd option of pension to erstwhile PF optees. As a result these banks were permitted to amortize load of pension for next five years.

Not only this, public sector banks in general avoided recruiting  new staff or recruited minimum number of  staff without keeping staff strength  in proportion to rise in business and number of branches in their bank. They did not hesitate to compromise even with quality of assets and quality of service extended by bank's branches.

Banks continued to open new and new branches to increase their business but without addition of staff .Thus they saved crores of rupees during last ten years on staff cost and booked profit by exploitation of staff only. For this purpose they resorted to building pressure on them to sit late and work on holidays. 

Further to add fuel to fire bank management did not sanction justified rise in wages in last two Bipartite settlements. This is why, wage structure of bank employees is now worse than class III and  class IV employees of central government.
Bankers agree rate cut by RBI can't lower inflation,
 but still want it

MUMBAI: Bankers agreed that inflationary conditions offered little room for lowering interest rates, but stuck to their demand for a rate cut, saying it was the only tool available to revive the "animal spirits" in the economy in the absence of policy action.

In their customary pre-monetary policy meeting withReserve Bank of India (RBI) Deputy Governor Subir Gokarn, bank chiefs also acknowledged that rate cut was not a panacea for the nation's economic ills.

Lenders demanded that RBI cut repo rate - the rate at which it lends to banks - by 25 bps to 7.75% and reduce cash reserve ratio - the proportion of deposits to be kept with RBI. These can be 'symbolic' gestures to industry and investors, bankers told Gokarn, according to bank officials present at the meeting.

The central bank will announce its quarterly monetary policy review on July 31.

"We know that RBI alone can't revive the economy and that a cut by itself will not boost growth," said a banker who attended the meeting, but did not want to be identified. "But a cut would be symbolic, especially in the absence of any action from the government."

A senior bank chief said a rate cut was unlikely.

"Monetary policy can't be a panacea for all ills," said Aditya Puri, chief executive at HDFC Bank. "A rate cut at this time with high inflation is not feasible," he said, adding that the government needs to take measures to tackle supply-side issues that are pushing up prices.
For more than a year, RBI has been pleading with the government to put its house in order as record borrowings by the Centre - Rs 5.7 lakh crore this year - have been crowding out private investments. It also said subsidies, notably on diesel, are distorting the market and leading to high deficit.

But there's little on the ground to show that the government will comply with these requests as political compulsions make it difficult to raise prices of diesel and cooking gas.

According to two bankers who did not want to be identified, Gokarn is supposed to have asked bank chiefs whether they were asking for a rate cut because the government had done something to improve the fiscal position, or were they expecting RBI to do so irrespective of government inaction.

But these statements could not be independently verified from the deputy governor.

RBI Bearing the Burden

RBI is being pushed to bear the burden of revitalising an economy that has fallen from being one of the top four growth economies in the world - the so-called BRIC - two years ago to possibly becoming the first among them to get a junk rating.

Clamour for remedial steps
Bankers seek cut in CRR

The Telegraph   10th July 2012
Mumbai, July 9: A circumspect banking community today asked the Reserve Bank of India to at least bring down the cash reserve ratio (CRR) if not the policy rate as a way to crank up credit growth and kick-start the economy.

The representation came at a customary meeting between bank chiefs and the central bank ahead of the first-quarter review of monetary policy at the end of this month.

C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said the RBI would find it difficult to cut interest rates with inflation still remaining high.

“I believe if the inflation rate, particularly non-food manufacturing, shows a decline, there will be scope for the RBI to adopt an easier stance,” he said on the sidelines of an event in New Delhi.

Expectations of a repo rate reduction by the central bank have been tempered in recent times after the RBI went for a status quo in the mid-quarter monetary policy review last month because of the looming threat of inflation.

The repo rate was then left untouched at 8 per cent and CRR pegged at 4.75 per cent.
The repo is the rate at which the Reserve Bank provides funds to banks. CRR is that portion of deposits which must be maintained with the apex bank. A reduction in CRR releases funds into the banking system.

With the domestic economy still in the grips of a slowdown and other central banks taking actions to spur their respective economies, the focus has shifted to what RBI governor Duvvuri Subbarao does at the end of this month.
Top bankers and the top brass from the central bank today met to discuss banking trends and how these could impinge on the monetary policy options.

Some of the bankers who attended today’s meeting included Alok Misra, chairman of the Indian Banks’ Association and the Bank of India, Diwakar Gupta, managing director and chief financial officer of the State Bank of India, and Chanda Kochhar, managing director and CEO of ICICI Bank. Deputy governors Subir Gokarn, K.C. Chakrabarty and Anand Sinha represented the RBI.

With the threat of inflation yet to recede, some banks are not expecting a cut in the repo rate but do want CRR trimmed.

“I don’t think we can expect a rate cut going by the current rate of inflation,” HDFC Bank managing director Aditya Puri told reporters.

Misra said the RBI should ease liquidity to provide a stimulus to the industry.

According to sources, few bankers at the meeting sought half a percentage point reduction in the repo rate for an effective transmission of lower rates to corporate and retail borrowers. This came after the central bank expressed its concern over banks not passing on the benefit of the lower lending rate to their borrowers in the past.

The RBI officials expressed concern over the slow growth in banking deposits. Deposit growth in the banking system for the fortnight ended June 15 slowed down to 14.3 per cent against 18.3 per cent in the same period last year. The RBI has forecast that bank deposits will grow 16 per cent this fiscal.

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