Sunday, December 16, 2012

Bankers Should Learn To Say NO to Unviable Proposals

Start saying say no to unviable projects, public sector banks told (From The Hindu Business Line)

RBI Deputy Governor K.C. Chakrabarty has said risk assessment capability of state-run banks is inferior to private sector banks and asked the former to develop the habit of saying “no” to unviable proposals.
“Knowingly you give money to some unviable projects. That is a governance issue... In many cases, our public sector bankers have forgotten to say ‘no’, except to small borrowers. A banker’s first characteristic should be to say no,” Chakrabarty told PTI in an interview.
The senior-most Deputy Governor, himself a commercial banker before being appointed to the Reserve Bank of India over three years ago, pointed out that “governance issues” in the functioning of public sector banks are leading to poor performance.
“The basic issue is that, the risk assessment capability and ability to price risks amongst the public sector banks is lower than the private sector banks or foreign banks,” he said.
“The governance capabilities for the state-run banks are definitely inferior (to their private sector counterparts),” Chakrabarty added.
According to the RBI data, gross NPAs of public sector banks (PSBs) rose to 3.3 per cent as on end March 2012, from 2.4 per cent a year ago, while for private lenders, the ratio declined to 2.1 per cent from 2.5 per cent during the same period.
A recent ICRA report warned that the bad assets book of banks are set to cross the Rs 2-lakh crore mark or about 3.8 per cent of the total asset book this fiscal, driven mostly by public sector bank.

Banks need to move into integrated risk management systems: Crisil

With the emphasis on risk management at banks growing globally, there is an urgent need for banks to integrate risk management processes with business and operating models, says rating agency Crisil.
Along with these, banks will also have to significantly enhance its stress testing capabilities and also increase their know-how on risk management related data requirements and analytics, the agency said in a report.
“The risk management processes at banks need to be better integrated with their business and operating models.
For this, risk management needs to be viewed as a key part of strategy and operations and go well beyond merely being a compliance exercise,” the report said.
Besides, there is a need to incorporate risk-based capital performance measures and stress testing more centrally into business decision-making processes, it said.
Also, banks need to do more in the area of integrated stress testing, including market, credit, liquidity and operational stress testing, besides testing their portfolios.
“Stress testing also needs to be forward-looking, with several tail risk scenarios and take into account the interconnectivity of the global financial systems and economies,” it said.
The outcome of integrated stress testing scenarios should be a key input for the management and boards of banks, while deciding on their risk appetite, capital and liquidity planning, the report said.
It is unfortunate that bankers instead of curing the sick system , instead of removing corrupt officers from top posts, instead of improving Human Resource policy to make it friendly for real performers, instead of accelerating recovery process, instead of providing adequate manpower , instead of strengthening risk management , instead of gearing up skilllevel of loan processing officers ,  instead of monitoring tools for keeping their asset healthy , instead of saying spade a spade in time and taking corrective action in time against defaulting borrowers or corrupt loaning officers ------------------------------------------------  Bankers always blame interest rate for worsening asset quality or blaming global recession for rise in bad debts or requesting RBI to reduce Repo rate , reduce CRR or  pay interest on CRR to earn profit.
It is important to say that even CRR is removed or government permits payment of interest on CRR or reduce repo rate, corrupt , unskilled officer and incompetent officer cannot ensure safety of their assets.These banks have already earned huge profit by reduction in CRR rate and after all liquidity generated by release of CRR or payment of interest on CRR will provide relief for few months and for few quarters only. After Entire CRR is released , bankers will have to accept the bitter truth and will have to cure the system to keep the asset in good condition. 
Management of public sector banks want to earn profit by exploitation of their workforce and this is why they have stopped recruitment inspite of large scale.  expansion of branch network. They do not like to promote real performers and this is why top executives who mostly are in charge of big branches and who sanction high value loans are responsible for abnormal rise in bad assets in these banks. Officers are promoted to top cadre but the health of branch or bank is going from bad to worse. 
Government will have to make adequate step to ensure that adequate manpower is provided in all branches and corrupt top ranked officers are immediately punished even if he or she is ED or CMD of a bank. If more than 25 % of Branch Managers in a region do not perform , it means Regional Head is incompetent , If most of regional heads are failing in their performance , Zonal head or central office level officers are failure in their task and hence they must be taken to task in the same way these Regional Head or Zonal Head punish Branch Head of Branch officers for non performance.

Bankers pitches for cut in rate by RBI in mid-quarter monetray policy review

NEW DELHI: Buoyed by fall in inflation, bankers have stepped up their demand for a cut in interest rate by the Reserve Bank in its mid-quarter review of monetary policy on Tuesday. 

Industry leaders too have been demanding a cut in interest rate to prop up growth and investment. According to SBI Managing Director Diwakar Gupta,RBI should consider cutting both repo rate and the cash reserve ratio (CRR). "As a banker I can always say that our wish-list is that rate should change, they should reduce. Both repo and CRR," he said. 

Repo is the rate at which RBI lends money to the banks. It stands at 8 per cent at present. "CRR has already been brought down significantly by the Reserve Bank, if they do a little more that will be great. Repo cut will actually bring down rate systematically in the system. So, deposits will be cheaper therefore people will lend cheaper. Overall there will be a downward bias which has been required," he said. 

CRR is the portion of deposits banks have to mandatorily park with RBI, which is 4.25 per cent now. Meanwhileinflation declined to 10-month low of 7.24 per cent in November from 7.45 per cent in the previous month. 

At the same time, the economic growth in the first half of the fiscal fell to 5.4 per cent, against 7.3 per cent in the corresponding period a year ago. The growth in 2011-12 fell to a nine-year low of 6.5 per cent. Indian Overseas Bank Chairman and Managing Director M Narendra said, " on date since liquidity still has been slightly tight, I think there will be some more support to liquidity." 

"We will not be surprised if there will also be a symbolic repo rate cut now and a major cut in January also," he said. "I expect that there should be some reduction in policy rates. It will boost up the sentiment and economic sentiment," Union Bank of India Chairman and Managing Director D Sarkar said. There is expectation that repo rate or CRR could come down by about 25 basis points, he said. 

On concerns of sticky inflation, the RBI had left key policy rates unchanged in its last quarterly review of the monetary policy in October but hinted at easing monetary policy further in the January- March quarter. 

"As inflation eases further, there will be an opportunity for monetary policy to act in conjunction with fiscal and other measures to mitigate the growth risks and take the economy to a sustained higher growth trajectory," RBI Governor D Subbarao had said in October policy review.

All Managers Should Know "When to Say NO"

I am submitting below an article published in the newspaper The Economic Times Today, 6th November 2012.. This true Story of Mr. Aditya Puri has many lessons to learn not only for Manager of Public Sector Banks but for  all individuals and Managers of all organisations and all political parties too.

Specially Manager of public sector banks should introspect and try to discover 

Why private banks like HDFC can achieve such grand success in only two decades of their existence which hundred year old banks could not do?

Why bad assets have accumulated in such large volumes on PS banks , not in private banks?

Click on following Link  to read more :------------------

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