Health of PSU Banks

Government is constrained to infuse capital in PSU banks year after year to salvage sinking banks or to boost up their capital adequacy ratio. Even World Bank is contemplating to infuse capital in selected banks in India to strengthen these banks. This reveals that PSU banks are actually growing weakness year after year and their balance sheets are nothing but result of window dressing in the style similar to which Satyam Computers applied to boost up image of the company.

PSU Banks are facing continuous erosion in their capital due to dirty policies of the government, politically motivated steps taken by the government and constraint in implementation of good policies. Inter bank interest rate competition, waiver of loan culture, financing based on political compulsions, constraints in recovery of loan from willful defaulters, undue delay in legal proceedings in want of proper judicial reforms, unhealthy HRD policies resulting in promotion of corrupt officers and demotivation of good officers etc are a few reasons which are causing great loss to banks and which has made the bank’s health poor and ultimately which forces government to infuse capital in banks.

It is to be noted here that when politicians take advantage of public money held in banks by resorting to loan melas or waiver of loan culture, bankers take it easy while lending to public. Bankers too do not hesitate in lending to improper companies and individuals with doubtful integrity just for their personal gain. There is no doubt bankers have inculcated wrong practices of flattery in banks. Executives, Branch heads, Regional Heads, Zonal Heads, EDs, CMDs focus on their personal status , personal earning by way of underhand dealings and indulge in flattery to their bosses, ministers, officers in banking divisions. They do not hesitate in taking malafide decisions just to please their bosses. Financing to wrong persons and taking gifts or money in return has become a common feature in banks at all levels.

If bankers do not earn illegal money they cannot please their bosses, government offices and even their juniors. Such honest officers cannot dream of promotion and good posting. As such earning money in credit delivery and sharing the same with bosses has become inevitable for survival in banks with dignity. Those officers who are not versed in this tact or modern art of survival or those who protest wrong financing are either posted at remote places or punished. Such genuinely loyal officers can never imagine of promotion or good posting. This is the main reason that bank officers holding key posts indulge in corrupt practice without caring for health of bank’s assets and this is the reason that intrinsic health of banks in general is not sound and banks always need financial support from government to survive.

But the million dollar question is who will bell the cat when Charter Accountant, officers working in rating agencies, officers in vigilance departments, officers working in bank’s own audit offices, advocates, key regulators all are birds of same feather.
23rd June 2010

multiple borrowings

There are many such persons in our country who have taken many houses on loan from different banks in the same name or in different name of the family in different bank at different places. Banks have in fact no control over multiple bank accounts, multiple borrowings, multiple title deeds for same house, and multiple tax payers in same family and so on. Extraordinary benefit in interest rates on housing loans, unjustified huge Income tax concessions on loan takers and the most important is positive response in the office of lending bank and their enthusiasm to sanction more and more housing loan are a few reasons behind reckless financing in housing loan segment and continuous increase in home loan activities in the country.

Not only this, even lenders avoid financing in other commercial activities like trade, agriculture, trasport, industry and concentrate only in retail loan segment. Almost all banks have opened specialized branches only to finance in retail sector with special focus on home loan and vehicle loan because retail loan helps in booting overall credit delivery and reducing surplus liquidity profitably instead of parking with RBI at negligible rate.

But there is no justification in giving all benefits to the same family and at the same deprives others (middle class family) only because he does not have adequate repaying capacity and margin to avail home loan from a bank. In our country where 95% of population cannot afford a good house or avail home loan from a bank, policy of liberalized fiancé to purchase house is used by only rich and affluent class.

It is an open secret that in our country there are some persons who are well versed and have all tools in their hand to take advantage of all types of tax benefits, subsidies and relief schemes launched by state or central government in the name of social inclusion and development of the area.

It is also true that these cleaver people get support from all offices and they get preferred services because they know how to handle government employees, how to flatter and how to share income with dealing officers to carry our their activities without any hurdle and it is they who accumulate wealth in very short span of time and eventually become instrumental in framing of policies in the corridor of Ministry of various departments in a government. Even tax official and bank officers flourish when this small segment of shrewd person flourish and this is why fault of policy or fraud in implementation level is not easily detected and by the time some aggrieved person exposes the reality and naked truth of government policy it is either too late or government comes out with same policy in different name, old wine in new bottle.

It is worthwhile to mention here that some private bankers though belatedly have realized the lacuna when they found percentage of Non Performing Assets increasing in Home loan portfolio year after year. But government is totally insensitive to national issues, health of PSU banks and the pain of the common men. It is beyond one’s comprehension as to how RBI or Government of India will actually be able to stop speculative activities in Home Finance.