Public and Private Sector Banks

Reality of stimulus package is now visible; Fiscal deficit is increasing , trade deficit is increasing, current account deficit is increasing and GDP is coming down, IIP figure is coming down, rating of banks is coming down rating of country is at alarming position and so on .Borrowing by government has been consistently increasing, public debt has reached to the level of 46 lac crores i.e. around 40% of GDP. Still government is allowing one after other subsidies to big

corporates,

exporters

and

importers.

Total subsidies , interest relief, and tax relaxation provided per year to high profile corporate comes to the tune of ten lac crores which is at least four times more than the total of subsidies provided to common men in the name of fertiliser subsidy or fuel subsidy.How can one dream of good results for common men when the present government continues such pro rich policies in the name of reformation.
I do not know whether stimulus packages announced by our government after 2008 -09 subprime crisis for Indian corporates was meant for what it has resulted in. I may categorically say that the medicine politicians are prescribing to cure the fiscal problems are less than what they are doing to fuel the sickness, to add fuel to fire of problem. Same is with public sector banks. They want youth power as if bankers have to fight on borders. They are opening branches after branches as state government did for spread of education and as government opened Thana after Thana, (i.e. police station) with a purpose to provide security to public. Government wanted to provide free education to poor children but parent do not want their children to be admitted in government schools. Similarly common men face injustice, torture, and exploitation and all but for God sake, they do not want to go to police station. God knows the reality.

Similarly good customers seldom like to bank with public sector banks even though they keep service charges lower than that in private banks. In only two decades of launching of private banks, banks like ICICI, HDFC and Axis bank has acquired more business than many PS banks who have been in banking business for 100 years. Public sector banks are opening more and more branches to increase business without taking care of existing business. As a consequence new customers are added and number of accounts has increased in these banks but at the same time, not only number of dormant accounts is increasing at faster rate but number of zero-balance accounts are also increasing. Obviously good customers are added by Public sector banks but not sustained for long .Though public sector banks claim to extend good customer service and claim to have extended their reach to more and more common men, the reality is that they are slowly going away from good customers. People prefer private banks even though their service charges are more and rate of interest is greater than that in their competitors in public sector including top ranked bank called as State Bank of India. This is why despite the increase in number of branches; business per branch has not increased in public sector banks. Similarly per employee business and per employee profit in private sector banks is greater than that in Public sector banks. Private sector banks open new branches with perfect number of manpower and complete set of infrastructure without affecting the existing branches. They keep ready new set of staff well prepared and well trained for prospective new branches. On the contrary public sector banks try to increase per employee business by curtailing manpower from existing branches and opening new branches with a one or two untrained, inexperienced, unskilled and undedicated manpower. Result is that quality and quantity of business is getting diluted and facing continuous downfall. Growth rate of business is lesser than that in private sector banks despite the fact that number of staff per branch is at least double in private banks than that in public sector banks.

Though there are number of senior officers posted in the Department of Planning and Organization and also in the department of and Human Resource Department. They may collect data, information, inputs, figures, ratios from different angle of consideration but they do not have capacity to analyze them and take corrective action. Their main motto is to project the figure as the boss desire, they do not have courage to accept the bitter ground reality and present the same to bosses without manipulation. They all are flatterers of one or the other boss and they are trained to present only rosy picture, this is why they are totally unaware of field level deficiencies, shortcomings and irregularities in functioning. Value and volume of Non Performing Assets (NPA), stressed assets and restructured assets has been increasing quarter after quarter but Gross NPA ratio or Net NPA credit ratio is not increasing as fast as it should. This is because banks are focusing on increasing growth on credit disbursal to reduce the ratio f NPA to Credit. When credit increases fastly, it helps in reduction of NPA ratio even if there is considerable increase in value of NPA. From 1991 to 2010 officials of public sector banks resorted to concealment of NPA to show reduced NPA credit ratio to Ministry of Finance and to win the heart of investors. Now NPA is generated mostly in all top ranked PS banks and hence it has become somewhat difficult for clever bankers to hide NPA until they resort to tapering with machine and play fraudulent game with technology. On the other hand private banks started with advanced technology and they never resorted to hiding of bad assets but they focused their preferred attention on quality lending and forced recovery from willful defaulters, even though some politicians criticized them. It is true that during last six months to one year, officials in public sector banks are also forced by their mentors to focus on recovery of dues from willful defaulters. This is why there is sudden jump in legal action, action under SARFACIEA and in cases of compromise and waivers. Of course there is phenomenal improvement in the efforts towards recovery of NPA in

government banks and this is substantiated by number of possession notices appearing in Newspapers and increase in cases at DRT. But it has to be kept in mind that if quality and quantity of manpower in branches do not improve the pathetic position of banks asset will move from bad to worse and worse to worst. The speed of addition of new NPA is still greater than that recovered from old defaulters. The most remarkable point is that most of high profile and powerful big bosses in government banks are surrounded by flatterers, manipulators, yes-sir speakers, and bribe earners whereas in private sector banks performers and only performers have say before bosses. Those who work in private banks get jump after jump in career, rise in salary and amenities and increase in powers whereas promotion in government banks depends on flattery, bribery and yesmanism. There is no question of hike in salary of good performers because if this power is invested in government bank officials they will also be misutilised by greedy persons. This is why irregularities increases in government run banks but bosses remain ignorant in most of the cases. They keep their eyes and ears closed when some critic dare focus on deficiencies, shortcomings and irregularities in the system. They think it wise to isolate such officers , post them in rural areas or at critical branches where such good officers become busy in quarreling with infrastructure and inefficient manpower or cry in depression in want of adequate manpower or fight with notorious elements of the area. There is heaven and hell difference between the attitude and way of thinking of officers of private banks and public sector banks. However this is also true that the mistake which a banker commit today, its consequences are visible after three four years or even after a decade or two. Banks committed mistake in selection of good officers and good borrowers five to ten years ago, the consequences of their ill motivated decisions are not surfacing slowly and unfortunately the new generation boys are facing the music of bosses.

Bank management committed mistake of large scale branch expansion in seventies and eighties to meet the requirement of Service Area Approach of the then central government. But the bad result of the same became visible when baking reformation started in nineties. Many branches due to recurrent losses were closed, merged with other branch or made satellite branch. Again in the name of Financial Inclusion these government banks are resorting to rapid branch expansion to meet temporary targets of business but the future bosses of these banks will have to face the consequences. When government talks of achievement of target set for lending and credit growth in bankers review meeting, bank officials prefer lending to big corporate. This is why almost 50% of total advances in these banks is concentrated in top one hundred to five hundred borrowers. When government talk of target set for lending to priority sector and to weaker section, they classify big value loans to priority sector. When government talks of increase in agriculture loan, these clever bankers cleverly classify all village loan to agriculture loan. As a matter of fact most of officers not only in banks but in all government departments are master in art of flattery , art of presentation of facts and figures, art of speaking from dias , art of garlanding ministers and top ranked officials, they know the tools of inauguration of branches and ATM through local powerful big guns, ministers and politicians ,they know how to please the bosses by rosy depiction of rotten picture and they know how to treat the bosses as per the will and inclination of individuals sitting at powerful position. Indians are master in this art and hence they are best planners, best presenters but worst executors. It is important to mention here that during last five years number of total staff in public sector banks has not shown any increase, rather there is reduction in total manpower due to retirement, resignation etc. On the contrary every PS banks has added hundreds of branches during the same period. As such number of staff per branch has sharply come down and it is from 5 to 10 in various government banks.

On the contrary private banks has not shown substantial increase in total number of branches and of course they have not opened new branches as faster as their counterparts in public sector and their per branch staff is more than 20 and even more than 50 in some exceptional cases. This is why per staff business and per staff profit in private sector banks is far greater than that in public sector banks. Scale of frustration and gravity of weakness is public sector banks is so much alarming that that despite sharp reduction in CRR during last month from 6% to 4.75% and SLR from erstwhile 40% to 24% most of the these banks, specially SBI has declared 9% interest rate on Term deposit even for 7 days on wards. These banks were hitherto crying for increase in CASA and now they are ready to pay upto 9% even short term deposits. It is astonishing that some of the banks are still offering interest to the extent of 11 on short term bulk deposits. And so on ..
Offices of Commercial Banks in India - 2007 to 2011

Bank Group 2007 (1) State Bank of India and its Associates Nationalised Banks $ Public Sector Banks Old Private Sector Banks New Private Sector Banks Private Sector Banks Foreign Banks Regional Rural Banks Non- Scheduled Commercial Banks All Commercial Banks
12 MAR, 2012, 01.25AM IST, ET BUREAU

As on March 31 2008 (2) 15848 39235 55083 4690 3634 8324 279 15054 47 78787 2009 (3) 2010 (4) 2011 (5) 18823 45850 64673 5028 6973 12001 319 16034 53 93080

14673 37415 52088 4826 2598 7424 272 14822 47 74653

16894 18186 40937 43467 57831 61653 4908 4332 295 47 5221 5231 310 48

9240 10452 15484 15740

82897 88203

RBI's aggression in cutting CRR is unwarranted

http://economictimes.indiatimes.com/opinion/editorial/rbis-aggression-in-cutting-crr-isunwarranted/articleshow/12225611.cms he 75-basis-point reduction in the cash reserve ratio (CRR, or the amount of money banks need to keep with the central bank) by the Reserve Bank of India(RBI) late Friday evening was surprisingly aggressive.

The reduction, which follows a 50-basis-point reduction in the CRR just about six weeks ago, is expected to give a respite to banks by injecting approximately Rs 48,000 crore into the system. Liquidity has been tight for the past several weeks - the CRR cut effected end-January brought little respite - and is expected to get worse by the middle of the month due to advance tax outflows. With banks already borrowing over Rs 1 lakh crore through the RBI's short-term liquidity adjustment (LAF) facility, clearly, there was a case to do something to prevent call-money rates from skyrocketing. The issue, therefore, is not over the direction of the RBI's move. It is rather about the quantum and the choice of instrument used by the central bank to infuse liquidity. The governor and other top officials of the RBI have repeatedly stressed that the battle on the inflation front is far from over. Oil prices are still high and the rupee is vulnerable. In such a scenario, an infusion of liquidity and on this scale is hard to justify. Until supply pressures ease - and there is no sign of that happening as yet - a large increase in liquidity is bound to feed into higher prices. A reduction in CRR infuses liquidity on a permanent basis. Hence, CRR as an instrument of monetary policy should only be used to address structural deficits/surpluses in the system. Temporary deficits/surpluses are best addressed through short-term measures such as the RBI's LAF and the marginal standing facility. There is nothing to suggest the present tightness in the system is structural rather then temporary. Inflation is still high and we are likely to see a fresh inflow of overseas funds thanks to the European Central Bank's aggressive loosening. In these circumstances, both the RBI and the aam aadmiwould have been better served if the central bank had tested the waters, eased gently and temporarily rather than aggressively and permanently. The government can help, by acting firmly on fiscal consolidation.

Above chart shows the information published by Reserve Bank of India. Era of economic reformation, privatization, liberalization and globalization started from 1991 after about two decades of exploitation by labour union under the banner of nationalization of banks and after having experience of almost two decades of labour exploitation before nationalization. Exploitation of bank employee was at climax upto the time when Indira Gandhi nationalized prominent banks in India in 1969.Exploitation by management slowly came down and exploitation by workers slowly increased to go beyond control. Bank management was advised to serve neglected and priority sector and take part in poverty alleviation programmes launched by government to meet social obligation. In the year 1991 ,Government followed the guidelines framed by USA and other developed countries to handover the banks to private sector . Mr. P. V. Narshimha Rao and Mr. Manmohan Singh together were suffering the pain of

Trade deficit and that of Dollar crisis because India was not having adequate reserve of US currency to meet payment obligation arising out of even one week Import. Export was not growing in tune with Imports. Trade deficit went beyond control. Government led by Narshimha and Manmohan Singh deregulated banks, process of issue of license for opening private banks was made easier, banks were freed to decide their own rate structure and individual bank managements of various banks were given maximum autonomy in lending. Slowly norms of social banking were diluted and profit making was emphasized. Bankers discarded priority sector lending and focused on bulk lending to big corporate. Profit making became the sole target of government banks to compete with fast rising private banks. Class Banking became the slogan of government and social banking became irrelevant and insignificant. Bankers saw profit opportunities more in high value and bulk lending. Probability of loss was more visible in lending under priority and neglected sector. Since banks were habituated to lend to earn bribe money and they were not having any control on recovery of loan, Non Performing assets went on rising. But they wanted to become number one among peer banks and book higher and higher profit. Top management gradually conveyed the message to all field functionaries not to declare bad assets in books of accounts. Officers who wanted to apply honestly prudential norms of RBI in classification of advances were transferred to critical places or posted in administrative offices to face the torture of bosses. In this way it became the culture in banks to hide and conceal bad assets to lessen provision and book more and profit. Branch head and Regional Head whose financial result exhibited less NPA and more growth in lending, good or bad were promoted year after year and given cream posting as happen in police department. Posting of an inspector in good police station where scope of bribe earning is huge is decided by his bosses on the basis of money he shares with bosses. All freedom given to greedy bankers in the name of reformation started adding fuel to fire. Unfortunately, no change was brought about in legal system. Legal tools available for recovery of bad debts were too weak and to ineffective to help in recovery of dues form willful and recalcitrant defaulters. Non Performing assets though concealed by clever bankers cause pain on balance sheet and huge money is spent on Charted Accountants to obtain

their concurrence and to obtain their signature on quality and quantity of good and bad assets. This process of manipulation with books of accounts continued for almost two decades. When quantum of bad assets rises, proportionate amount of provision has to be done as per RBI norms. The higher the provisioning the lesser will be the profit. Government under the banner of reformation wanted banks to earn more and more profit and share dividend with government. Therefore some of clever bankers started hiding bad assets to increase profit. Slowly it became a culture in all banks not to follow RBI norms for income recognition and classification of assets. This is why NPA ratio started coming down from 24.8% in 1994 and reached bottom to 2.2% in 2011. Clever bankers increased credit at the rate of 40 to 50% per year and concealed all bad assets which resulted in continuous fall in Gross NPA ratio of government banks. It is not that legal system helped banks to recover money from defaulters. Even now cases filed against defaulters are not decided even in two or three decades in Indian courts, or Debt Recovery Tribunal. Corruption and unwillingness to act against defaulters continue to contribute in escalation of Non Performing Assets. It is not true that bank officials became intelligent overnight during reformation era i.e. after 1991, Rather corrupt officers in banks in nexus with corrupt politicians want on lending to unscrupulous businessmen to earn more and more bribe and become more and wealthier. It is not a fact that officers in banks did good home work and honestly sanctioned loan to good borrowers which helped in reduction of NPA in Banks. It is not that bank officials worked hard to monitor bad advances to prevent rise in bad assets. It is not that borrowers became honest; it is not that borrowers became religious and started following good morals, and it is not that borrowers became law conscious and afraid of legal action or punishment from judiciary that they started abiding by terms and conditions sincerely and honestly to become god customers in the era of banking reformation. It is not that borrowers started repaying all installments in time and repaying all loans on demand made by bankers. It is bitter truth that quantum of NPA has come down not because of improvement in quality of bankers and neither because of improvement in moral standard of loan takers. Bitter truth is that banks adopted Core Banking Solution during last five years and slowly all banks and all branches have started functioning on CBS

platform. Even after working under advanced technology the clever and shrewd bankers manipulated system and got succeeded in concealment of bad advances. For four or five years such dirty work of playing with system continued . Last year only RBI advised all banks to declare bad assets strictly as per system and not to change it manually to hide Non Performing Assets from books of accounts. Again RBI gave some relaxation to save some prominent banks going bankrupt under the burden of sudden exposure of all bad assets. Sudden exposure of bitter truth of bad assets accumulated in a decade or two could have adversely affected the profitability and capital adequacy ratio of banks and have created irreparable damage to image of Indian banks in world forum .As such RBI and Government of India in nexus with top management of Public sector banks decided to declare hidden bad assets in phased manner. This is why Volume and Ratio of Non Performing Assets in all government banks have doubled or trebled during last three years and it will go up I coming quarters. It is expected that total NPA in PSBs will reach upto two lac crores by the end of 2012 and gross NPA ratio may reach upto 5% .Now it is crystal clear that sudden rise in NPA in banks is not due to bad weather or global recession or inflation but it was manmade and it will continue to hurt good money of good depositors. Government will have to infuse capital from time to time to provide safety to Public sector banks and to enable them to survive and compete with private banks. Damage caused by corrupt bankers and corrupt politicians is so much deep rooted that it is difficult to dream of asset remaining good. Culture of bank officials has been spoilt by dirty politics of dirty politicians. Crisis in bank is inevitable and God only know when it will erupt and how it will be handled by wise and doctor Manmohan Singh and his government.

If government does not make judiciary strong and effective, If politicians do not stop misusing banking fund for vote bank purpose and if they do not stop loan waiver culture, if government as well as bank management do not discard policy of taking decision based on flattery and bribery, if banks and Minister continue to have faith on officers who is clever in delivering lectures,

if Ministry of Finance continue to sell the post of ED and CMD and then CEO selling the post of GM,DGM etc , if unachievable credit target continue to be imposed on banks without ensuring adequate quality manpower, if anti corruption agencies continue to work in nexus with corrupt officials , if RBI do not give relaxation in prudential norms set for income recognition and classification of assets and if Government stick to adopting Basle III norms , there will be no doubt in the minds of wise, honest, matured and experienced bank officials that movement of NPA in government banks will take reverse gear and resume its upward trend and with accelerated speed cover the path of NPA ratio moving from 2.2% to 24.8% of total advances. There is no doubt that the government will have to revisit the policy of reformation launched in the year 1991 and assess the gain and loss happened to banking industry by dint of unwarranted freedom given to banks in lending, in interest rate , in recruitment, transfers and promotions and so on.As a matter of fact human being are by dint of their creation not fit for absolute power. Power more often than not make one corrupt and tempt him or her to think more about self ,about wealth and about self ego and status than that of the organisation.