Sunday, October 28, 2012

Restructuring Of Bad Loan Accounts in Public Sector Banks IS Compulsion

This refers to statement made by learned Finance Minister Mr. Chidambaram saying that PSU banks take huge exposure without collateral whereas private banks ensure adequate safeguards. After all why large scale corporate defaults take place only in government banks, not so much in private banks.

Most unfortunate part of the story is that clever bank officers who occupy the top post in each bank still provide lame excuse to Finance Minister for abrupt and abnormal rise in bad assets in their banks. These clever banks say that if the economy would have been doing well, there would not have been defaults.

It is not only Kingfisher, or Deccan Chronicles or Zoom Developers whose loans are bad , there are many such bad loan accounts still concealed by these clever bank officials in collusion with none other than official of RBI and that of Ministry of Finance.

There are still huge bad assets concealed by banks to increase profit and decrease provision and keep their share value intact. Banks in general are tapering with the system as also misusing existing prudential norms for classification of assets and that for income recognition. They are willfully and frequently restructuring bad loan accounts, making fake entry in account to book false recovery in account, falsely showing receipt of stock statement or false recording renewal of credit facility and resorting to many such unethical methods to conceal bad assets and only slowly allowing system to recognize bad assets. After all human brain is bigger than that of computers. Computers or CBS system recognize based on data fed into it.

Almost all banks, big banks like SBI or PNB and smaller banks like Vijya Bank or Syndicate bank, Oriental bank or Federal bank are willfully and strategically altering the repayment schedule of most of their bad loan accounts to keep them standard and they do not report these accounts in the statement sent to RBI and MOF which they are supposed to  submit related to all restructured loan accounts every quarter. It is simply a matter of time; some banks declare some amount of assets as bad this quarter and some in other quarter. 

Even officials at RBI and MOF also think it wise to remain silent spectators of such large scale manipulation going on in public sector banks with their system of recognition of bad assets. 

So far as large corporate defaulters are concerned, banks are forcing them to apply for restructuring of debts so that NPA of the bank does not rise. Obviously it is not always the will of borrower that the loan account is restructured , rescheduled or rephased but it is the unilateral decision of bank officials to use such tools to hide bad assets and to keep their bank falsely attractive and to conceal their past misdeeds.

The bitter truth is that the officials who are responsible and accountable for defaults in high value accounts are themselves now posted as General Manager, Vigilance officer and IR officer etc. When culprits themselves are the police officials, there is no hope of punishment to any officer. When officer accountable for escalation is bad assets are given the responsibility to fix accountability on erring officials , one may imagine the outcome.

This is the work culture in almost all banks and in all government offices. A thief is made police or inquiry officer to investigate the theft case pertaining to his own case or that of his friend or his colleague. There are many flatterers who are ready to sign on any blank paper to lease the boss and they are submit to prepare and submit report absolutely as per the will of bosses ignoring the truth of cases related to bad accounts or even fraud accounts. This is why guilty officers who are sitting at top posts are never punished 

 Culture of flattery, bribery and manipulation moves on unabated, rather gets boosted up and promoted to more and more areas of operation.. This is the tragedy of all government offices and all ministries in the government. There are several officers who faced the music of transfers in the hands of corrupt bosses similar to What Mr. Khemka faced in Haryana. Officers who hesitate in abiding illegal orders of corrupt bosses are never promoted and invariably rejected in interview despite all the best records of performance.

One may admit the bitter truth or not , but it is undeniable truth that officers who are responsible for ill health of the bank are now posted at key posts and hence decision making on all charges of corruption is invariably delayed and postponed for indefinite period or files are misplaced .

Loan above one core rupees are sanctioned by higher offices and by top ranked officers only, but top officials are never punished even if there is visible proof of negligence and willful violation of sanctioning norms. If loan accounts having exposure of one crore and above is given to CAG for audit , I think none of executive will be safe and many retired officers will have to be punished. .

It is important to mention here that total of loans given by top ranked banks of the country to only three companies namely Kingfisher Airlines, Deccan Chronicles  and Zoon Developers is more than Rs.13000 crore which is now declared as bad by concerned banks. And I am very much sure none of top officials of any bank or that of RBI or that of Ministry of Finance will be taken to task. Rather the guilty officers will be given more powerful assignments in future.

If only 100 high value of so called standard loan accounts and 100 high value NPA accounts from each public sector bank are  picked up and the task of investigation is given to American Investigating  Agency  or American Judiciary to reveal the real health of these loan accounts and to fix accountability on erring officials , I am very much confident that at least fifty percent of officers in scale IV and above including General Managers, ED and CMD of each bank will be in jail like Rajat Gupta for insider trading. I do not wish to cast aspersion on top officials of RBI and Ministry of Finance who are also directly or indirectly involved in sanctioning and monitoring process of all such loan Accounts.

It is possible only India where law breakers like Salman Khursid are made Law Minister and after exposure of their misdeeds by media, they are promoted and made External Affairs minister . It is in India only that master of misinformation Mr. Manish Tiwari is made Minister of Information .

Increasing corporate defaults force finance ministry to review PSB loan process

News Published in Economic Times on 29th Oct 2012 

NEW DELHI: The finance ministry is set to review the process adopted by state-run banks to assess loans after it found that these lenders are saddled with the biggest cases of corporate defaults.

The ministry, which is preparing a case study of corporate defaults over the past six months, is perturbed that while private banks have largely managed to insulate their books from bad debts, public sector banks failed to follow even the basic checks and balances in some cases, like securing collateral before sanctioning loans.

A finance ministry official said loans extended to Kingfisher AirlinesBSE 4.59 %, Deccan HoldingsBSE 4.93 % and Zoom Developers-all of which have turned bad-alone runs into Rs 13,000 crore. "We will look at the procedural issues," the official said, while stressing, "It is not an inquiry into individual cases."

Net non-performing asset ratio of PSU banks rose 44 basis points to 1.53% in 2011-12 over the previous year. In stark contrast, net NPA ratio of private banks fell 10 basis points to 0.46% over the same period. One of the state-run banks had lent Rs 700 crore to Kingfisher Airline despite a damning internal assessment.

Increasing corporate defaults force finance ministry to review PSB loan process

Fall of a titan: Lessons India should draw from the Rajat Gupta conviction

The story of the rise and fall of Rajat Gupta, the now-disgraced , former head of consultancy major McKinsey & Co is the stuff of Hollywood or Bollywood . But the human angle is only one part of the story. The other, equally important, relates to the financial crime that felled Rajat; a crime that is sadly commonplace and is yet notoriously hard to nail: insider trading. 

As the name suggests, it refers to using or communicating knowledge that only company insiders are privy to in order to gain an unfair advantage on the stock market. As a director on the board of Goldman SachsRajat Gupta was privy to information thatWarren Buffett was set to pump in $5 billion into the investment bank before the news became public. But instead of keeping this information confidential, he leaked it to his good friend, the Sri Lanka-born Raj Rajaratnam, who promptly bought shares in the bank that he later sold at a huge profit. 

Unfortunately for Gupta and fortunately for all those who believe in the importance of market integrity, his 'disgusting' act of betraying the trust reposed in him came to light, thanks to a meticulous investigation by the US Securities and Exchange Commission (SEC). The SEC, together with other investigative agencies, pieced together the crime, culminating in Gupta's conviction and sentencing on Wednesday . 

They were, no doubt, aided by court-approved permission to eavesdrop on Rajaratnam's telephone conversations that provided clinching evidence. So what are the lessons for a country like India where insider trading is rampant and the markets regulator has had scant success in securing convictions? One, we need much better coordination between different agencies charged with the objective of tackling white-collar crime. 

Two, there is no alternative to meticulous investigation. We have a Serious Fraud Investigation Office, an Economic Offences Wing and agencies like the Central Bureau of Investigation (CBI), but they lack professionalism and teeth. Witness the number of times the court has pulled up the CBI for shoddy work. Most important of all, we need speedy dispensation of justice for all, big or small. 

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