Risky futures that banks Should Avoid
Finance Minister sometimes talk of giving permission for opening of more and more new banks and some other times talk of consolidation of banks to compete with International Banks. He sometimes advises banks to concentrate on core banking activities and some other time tell them to trade in commodity future which is not core banking activity.
It is Pathetic that current sickness of public sector banks caused by huge bad assets has not opened the eyes and ears of FM. Every year Government has to infuse capital in banks to keep them in good condition. Neither small banks like Vijya Bank nor big banks like SBI or PNB are able to save their profitability and safeguard their assets and capital .It is only by manipulation and fraudulent method or by relaxation given in CRR that these banks book little profit and that too by keeping reduced provision coverage ratio below benchmark fixed by RBI .
Banks officials firstly lend to unscrupulous borrowers under political pressure and then write them off or enter into compromise settlement with recalcitrant and willful defaulters under pressure of the government . Both ways they are weakening not only the banks but adversely affecting the interest of investors ,customers and that of working employees too.
Health of banks is moving from bad to worse and they are surviving the crisis not at their own but mostly by ventilator provided to them by GOI. Complete lack of control , bad governance , bad Human Resource Policy, weak legal system and profuse political exploitation have already ruined the Public sector banks. Now FM is trying to further add fuel to fire by advising banks to trade in commodity future.
Finance Minister advised bank in last few days to focus on their core banking business and try to minimize their involvement in non banking business like insurance , mutual fund ,portfolio management etc. It is well known to all that after imposing non banking business targets on banks by government of India banks in general has already reduced lending to core sector of farming and industrial development which has resulted in poor GDP growth.
Not only this in want of adequate manpower in branches , bank officials are unable to attend customer service related to their core business in a satisfactory way. This has led to exodus of good customers from these public sector banks to private banks. It is important to note here that private banks have provided separate and adequate manpower for banking and non banking businesses whereas PSBs are forced to perform both banking and non banking business with one or two staff in most of towns.
It is further painful and astonishing too that the same FM who advises banks to focus on their core activity of lending and accepting deposit are advising banks to trade in Future in Commodities.
Is he bent upon spoiling the future of bank? There is an old proverb "A future is enough to spoil the future of an individual share trader".
Banker who are adequately trained and who do not have enough skill to do simple banking activity , they cannot be expected to hedge credit risk by buying commodity future as envisaged by FM while suggesting banks to trade in Commodity future.
It will not be wrong to say here it is only after introduction of commodity trading in India, Consumers of the country has to face the pain of relentless price rise and inflation has gone beyond control despite all steps taken by clever officials of Reserve Bank of India.
Last but not the least , When profit of banks will be adversely affected by rising bad assets and through losses in future trading , it will ultimately be bank staff who will have to bear the brunt of bad policies, It is staff whose wage are not rising at par with that of central government employees or state government employees .Poor wage structure of bank employees has also played negative role in maintaining health of banks , poor customer service and poor growth in bank's business and finally led to exodus of good performing staff and rise in attrition rate compared to that in private banks.