News and Views for Bank Officers

Government guidelines issued for promotion of officers in banks from one scale to other is given below and thereafter I have submitted my views. I realise it very well that my mails are neither read not given any weightage because I am not a key figure, I am not leader in officer's association and I am not top ranked officers and neither I can deliver a good lecture like politician such as Rabri Devi or Lalu Yadav or Manmohan Singh. 

Still I submit my apprehension about flattery based promotion policies prevelent in public sector banks and suggest to avoid process of interview , group discussion etc which gives an opportunity to top ranked officers to reject or select as per their whims and fancies.  My language may not be attractive but there you may find some good ideas.In banking industry union leaders and top ranked officers together are looting bank fund in the name of credit growth , social justice and loan waivers and in the name of recruitment , promotions and transfers. It is necessary to get the process investigated by CBI , CVC and other suitable anti corruption bodies.

I am unable to understand when IAS and IPS officers can be promoted on seniority basis and when there is no question of stagnation in central services why bank officers are subjected to flattery culture . In our country where 50 lac crores of rupees of public deposit are handled by bank employees and if they are not loyal and devoted , if they are not provided police protection and if they are not awarded due justice in their career , no one can prevent banks suffering huge loss and ultimately either collapse or need ventilator of the government in form of capital infusion. After all it is public money which is to be protected and it is possible only when bankers are truely devoted and honest.

Police officers provide 24 hours securities to key politicians, governors and VIPs but bank officers who are to manage and safeguard 50 lac crores of rupees are left unbridled, unprotected and unrewarded and thrown open to torture in the hands of a few corrupt top ranked officers.

F. No. 4/11/1/2011-IR

Government of India

Ministry of Finance Department of Financial Services

Jeevan Deep Building, IIIrd Floor,

Parliament Street, New Delhi – 110 001 

Dated the December 5, 2011.

Chairman & Managing Directors of all Public Sector Banks

Subject : Guidelines for Promotions in Public Sector Banks

Sir,

1. Government vide circulars No. 4/5/6/84-IR dated 23.06.1986 and 14/18.09.1987 respectively, had laid down the promotion process to be followed in Public Sector Banks. It has, however been noticed that over the years, many banks have deviated from these guidelines and have not only change the eligibility in terms of experience but have also introduced various channels of promotion other than seniority such as “Fast Track” and “Superfast Track”. This has created a large number of anomalies across banks in their promotion process which have created difficulties in addressing the issues of severe shortage of manpower at top management levels in Public Sector Banks. 

2. The Matter of revision of the guidelines has been under consideration of the Government. Draft guidelines on the subject were issued by this Department; vide letter of even number dated 21.10.2011 and 29.11.2011 for views / comments of Public Sector Banks.

3. After taking into consideration the suggestions received from Public Sector Banks in this matter, the Government, in supersession of the earlier guidelines issued in this regard, issues the following guidelines :-

i. The channel of promotion and minimum experience requirement at various levels shall be as follows :-

Scale Promotion Channel Minimum Experience requirement

(in years) Maximum permissible relaxation by Board

(in years) Minimum length of services

(in years)

I to II Normal/Seniority Channel 5 1 NA

Merit/Fast Track Channel 3 1 NA

II to III Normal/Seniority Channel 5 1 NA

Merit/Fast Track Channel 3 1 NA

III to IV Merit/Fast Track Channel 3 1 NA

IV to V Merit Channel 3 1 12

V to VI Merit Channel 3 1 15

VI to VII Merit Channel 3 1 18

ii. The cutoff date for determining eligibility as well as completed years of service will be as on the 1st of April of the financial year (April – March) in which the vacancies arise.

iii. No officer would be given the benefit of relaxation in the minimum required experience by the Board at two successive levels of promotion in Scale – III and above.

4. Promotion from Scale – I to II and II to III

i. There shall be a requirement of minimum 75% marks in APAR for each of the years of service eligible for promotion in case of promotion on merit / fast track channel.

ii. There shall be a mandatory requirement of two years continuous service in rural areas for promotion from Scale – I to II, and a total of three years in rural / semi-urban areas, including the rural service in Scale – I, for promotion from Scale – II to III. For the seniority channel, officers who have put in more than the aforesaid service in rural areas will get an advantage of further relaxation of 50% weightage in minimum experience for each additional completed year of service while assessing their eligibility as per Para 3(i) above. 

5. Promotion from Scale – IV and above

i. For promotion from Scale – III to IV and IV to V, it will be mandatory to pass an examination to test for computer literacy and computer knowledge.

ii. For being eligible for promotion to Scale – V, the candidates should have been a Branch Head for at least three years. Officers recruited for specialized cadre would be required to have field experience in a branch or as branch head. In case of officers in specialized cadres, this requirement can be complied with over the next three years, beginning with 2013-14 when experience of one year, and two years for the year 2014-15 would be necessary.

iii. For being promoted to Scale – VII, the officer should have Regional / Circle Head or must have worked, in Scale – III to V, in the Regional / Circle Office for two years.

iv. It shall be mandatory to have a Group Discussion to assess the communication, conceptual and leadership capabilities for promotion to Scale – IV and V. For this purpose, a Board consisting of outside experts and officers of the Bank should be constituted with the approval of the Board.

v. Bank shall make appropriate job rotation policy giving exposure to all verticals for officers in Scale – V and VI and get it approved from the respective Board.

vi. The interview committee for promotion to Scales – V, VI and VII should have two outside expert with domain knowledge approved by the Board of the Bank for each year.

vii. During interview for Scales – V, VI and VII, weightage should be given to the following :-

a) Whether the officer has worked in different specialized areas of the banks.

b) Whether officer has been posted to different parts of India or has been only one / few Region / Circle.

c) Whether the officer has experience of working in the field as well as working in Regional / Zonal and Head Office.

d) Whether the officer has professional qualifications and has the officer acquired additional qualifications after joining the service.

6. Banks would be free to also have system of written examination for promotion at various levels as per their Board approved policies.

7. (i) For specialist cadres, namely, forex, credit, technology, HR, wealth management, etc.. it shall be mandatory that prior to joining the main stream cadre, the officers joining these cadres should necessarily remain in that cadre for at least five completed years of service. Thereafter, the officer should gain experience of at least two years in field operations. There will be exemption from posting to rural areas for these officers.

(ii) Officers recruited in the specialized cadre would be eligible for promotion in their respective cadre as per the eligibility and experience mentioned at para 3(i) above and shall be allowed to join the main stream in the event of completion of service as mentioned in para 7(i) above. It must, however, be ensured that suitable replacements are placed in the vacancies likely to occur in specialized cadres.

(iii) Banks should ensure that before moving the officer to a field position or to main stream cadre, they develop the capacities of other officers of the bank in order to ensure proper functioning of that specialized vertical. No officer shall be moved to the main stream cadre / filed positions without ensuring this.

8. The zone of consideration for promotion should be strictly maintained at 1:3 ratio. However, in case, the required number of suitable persons is not available, the banks may enhance this to 1:4 with prior approval of the Board.

9. The guidelines shall come into force with immediate effect and shall be operationalised after adoption by the respective Boards.

This issues with the approval of Secretary (FS).

Yours faithfully,

Sd. (Vijay Malhotra)

Under Secretary to the Government of India 

Copy to :-

(a) All Government Nominee Directors for information and necessary action.

(b) Coordination. Section. For placing on circular file.

(c) Computer Cell for placing on the website of DFS under head Banking / Circulars.

With reference to new terms of promotion policy for bankers dictated by Ministry of Finance I would like to place my views for consideration of bank employees, for union leaders who are supposed to protect the interest of bank employees and for top executives of bank management who have been directed by MOF to frame new policy of promotion for officers.

I would like to say that until there is system of Interview in promotion processes there is no guarantee that whimsical rejection or arbitrary promotions will not take place in Government Banks. Interview is the root of all maladies in all banks and in all government departments. Members of Interview panel more often than not apply their whims to select or reject a candidate ignoring completely the quality and quantity of work done by any particular officer. Various powerful officials are used by candidates as source called as Godfather to win the hearts of members of Interview panel and this give rise to flattery and bribery. As such I feel the system of Interview must be abolished completely.

I feel there is no benefit in conducting group discussion for promotion of any officer in any scale and neither is there any need for having a separate Merit Channel which gives scope of manipulation. During five to thirty years of service, top executive of banks get hundreds of opportunities like meeting, branch visit, correspondence, audit reports which give ample opportunity to judge the quality of an officer who is candidate for elevation. If the higher executives are not able and do not possess enough capability to assess and ascertain the level of proficiency, efficiency, communication skill, , behavior with customers, work performance, style of working, relationship, innovative and creativeness , level of initiative, loyalty to bank, level of corruption, honesty and integrity  etc of an officer in span of five to thirty years , how can interview panel members judge all these in a minute or two of time available in Interview with candidate eligible for promotion?

 Interview in my view is undoubtedly a tool given to management to reject good officers and whimsically select bad officers for higher assignment on some plea or the other. Same logic applies for all organization and government offices. This is why most of officers promoted to executive cadres are subsequently found to be guilty of various malpractices and later given non-sensitive assignment. It is different that such evil worker or officers get patronage and protection from his mentors sitting at top echelons and due to which they are never punished but always promoted to higher level.

Madu Koda , Harshad Mehta, A Raja, or Suresh Kalmadi succeeded in execution of their ill conceived ideas causing loss to government in tune of hundreds of crores of rupees. They succeeded in their dirty goal only because they could use their power to select flatterers for their team who blindly say yes to every order of Ministers and who do not talk of ideal or safety of the organization. By dint of money power they could earn through the rout of bribe and flattery they could manage the CBI official or vigilance official or inspecting and audit official to conceal their evil works. In the same fashion top bankers select a few flatterers and blind followers who can earn illegal money through bad lending or through ill motivated contractual works and share with them.

Similar is the line of action of top ranked official in banks who manage vital issues and who decide on big value loan proposals. In such position and in such a dirty environment, an honest and talented officer cannot visualize performing as per set procedures ensuring safety and security of the bank. And when the work culture depends on so many extraneous factors which are beyond control of officers there is no merit in talking of merit channel or group discussion or interview.

Root cause of all maladies lies in these delegated powers in top executives which shuts the mouth of good officers and when such culture is prevalent, even policy of whistle blower become futile. Officers who move opposite the line of bosses are transferred to such a critical branch that survival of officer and his family becomes an issue. Can an officer in such critical place of posting with humiliating background behind the scene perform as per his skill or as per his potential and give same growth as an officer posted at comfortable branch? Not at all. 

There is no fixed yardstick which can measure perfectly the efficiency, honesty and loyalty of an officer until the intention of assessing authority is bad. It is therefore desirable to give all promotions based purely on seniority and punish officers who commit mistake or train officers who are willing to perform but lacks in knowledge. Same practice is prevalent in central government services as regards promotion and release of increment without stagnation. It is different that again politicians use transfer powers to make or mar the career of an officers for their vested self interest.

I further feel  that  the method of Fast Tract  called as Merit Channel is another scope to bank officers to concentrate of academic knowledge and somehow or the other pass various examinations even by unfair means . In most of the cases officers who are weak in performance but strong in reading and raising knowledge level get success in written test and get promoted from one scale to other scale even though their performance in the field level is dismal, damaging and full of corruption.

Banking service is completely practice oriented and here focus remains on how an officer render service to customers and not on how much knowledge he or she possesses. I agree that one banker should possess adequate educational qualification and it should be ensured at the time of fresh appointment. There are many officers in banks who continue reading even during service period but do not perform at all in the branch they are posted. They know that if they acquire degree they will get better marking not only in appraisal and in interview but also create good impression in the minds of members of Interview panel. Such officers even at work place focus on circulars and make diary but they seldom apply their knowledge to enhance productivity of the bank.

It is true that practice without theory is blind, but it is also true that theory without practice is impotent. It is to be kept in mind that after passing ordeal of written examination, Interview and group discussion, a person is appointed in a bank. Once a person is selected for banking job, it is the duty of bank management to make him perfect in the line of activity he is supposed to work. As per assignment of duties the employees should be trained and motivated.

If banks fail to prepare an officer for particular job, it is the fault of training system and that of department of Human Resource Management and that of Planning Department. It is the duty of bank management to use the bank employee as per his attitude, skill, knowledge, interest and specialization. It is absolutely bad to deprive any office from promotion or even from annual increment if the bank does not have adequate vacancies or when bank fail to ensure good working culture.

Besides if the assessing authorities fail to assess the merit of officers in a period of five to thirty years they cannot do the same in few minutes of group discussion or interview or by placing some questions in written test. Besides it is also bitter truth that the same officer is assessed differently by different assessing authority due to his different level of perception, conception, preferences, love and hate style. Fate of the same person depends less on his or her skill but more on the prejudiced eyes of assessing authority. Same piece of cloth in a cloth shop may be liked by one and disliked by the other. Cloth is same but buyers have different likings and different attitude. God has made it , none is guilty for such multiplicity of attitude, conflict of interests and varity of inclination and deflection.

Many times officer in a bank do not succeed as per expectation of higher management due to situation beyond his control such as there is no adequate manpower in the office he works. Branch has to waste most of precious time in unproductive work like pension payment, No frill accounts as suggested by the government, salary payment of various department.

Interruption by higher bosses in normal functioning by asking various types of reports and statement by adding duties which are not reckoned with in appraisal system for assessment of work performance also adversely affect the efficiency of an officer in a branch.

When his predecessor ( branch head who worked prior to present incumbent )has committed fraud, disbursed loans to bad borrowers without completing required formalities, when Non Performing assets in a branch is huge and the new incumbent officer who has inherited bundle of irregularities  has to devote more time on improving housekeeping , on recovery of past loan than in mobilization of new business and on creating better relation with customers. Image built by his predecessor is so bad that customers hesitate to oblige new incumbent and business do not grow as per expectation.

Every Higher bosses has his own liking and disliking. They may compel a subordinate officer verbally to sanction advances to persons of their choice and punish officer if he or she does not abide by verbal instruction. Otherwise best option available to boss is to threaten such officers of transfer to critical places.

Area of posting also plays a significant role in performance. If an officer is posted in bad area he cannot give good output. If the place where he works is crime belt or naxal affected or where security threat is more, growth of business will be at low speed. On the other hand if position of branch is in business concentrated area, bank’s business may also grow at higher speed. Moreover customers also hate going to crowd inflicted area or robbery prone area to avoid cash loss risk or life risk and in such position even good officers cannot perform well.

And so on ------------------------------------

Moreover the business of any branch depends on potential of the area also. If an officer is posted at critically remote village or crime prone area or is disturbed mohalla he or she cannot increase business as an officer posted in an area where number of government departments are more, where schools and colleges are more, where the area is in developing stage and government sanctions hundreds of crores of rupees for development, where Multinational companies and big domestic companies are situated etc.

Sometimes multiplicity of banks in a particular area also dampens the prospect of growth. Private Banks offer better ambiance and skilled staff on front level counters backed by a team of marketing personnel whereas PSBs open their branches with one or two staff and place of branch is selected in remote corner so that rental payment is minimum. As soon as a branch of private bank is opened, customers of high standard prefer to switch over to Private Banks.

Branch Managers of branches of various government banks are busy in preparation of reports or statement. VIP Customers are going away from public sector banks to private and foreign banks and on the contrary pensioners, teachers, salaried people, NAREGA beneficiaries etc have become choice customers or compulsion of PSBs.

Even after having customer friendly service charges, customers prefer foreign and private banks because they are fed up with the attitude of employees of government banks. Employees in public sector banks are invariably short of manpower or incompetent or frustrated or busy in preparation of various reports and statements or in recovery of bad loans or busy in serving their bosses etc.

Good customers dislike PSBs, they dislike share of PSBs and prefer buying shares of Private Banks even at higher PE but retired persons, students, low paid salaried people, small retailers etc like going government banks due to lesser service charges. There may be plenty of General Managers, DGMs, AGMs, and CMs in administrative offices but there is no adequacy of staffs in most of the branches to serve the real customers.

Moreover the brainless expansion of banks and opening of new branches to cover up Financial Inclusion has also added fuel to fire. Total number of staff in a government bank is less than what it was ten years ago even though thousands of employees have left the bank, business of bank have grown ten or twenty times and new products have been added to banking industry. There is practically no proper man power planning due to some reason or the other. It is the employees who ultimately bear the brunt of higher management when they fail to perform as per the desire, whims and fancies of his bosses.

Similarly an officer may have influential IAS and IPS officers as his relative, ministers and important government officers as friends and may have linkage with high profile corporate houses. In such position he or she can attract good business for branch he is working as Branch Head. On the contrary some other officer may not have such good connections and so his power to mobilize business may appear low and weak even though he or she is good performer and when customers are happy with his services. Quality of a bank officer should be judged by service extended by his team to bank customers and safety provided to bank assets and not by numerical numbers of growth in deposits and advances.

There are some officers who are good in mobilization of deposits, some have better expertise in lending, some have good marketing skills to sell Non banking products and some other have some other qualities. Every officer cannot be expected to perform similarly in different circumstances. Growth of bank’s business does not depend solely on quality of officers or qualification of officers but also on various other factors which are beyond the control of officer. Policies framed by difference banks is different, quality of higher management in different banks at different level is different, quality and quantity of subordinate staff is different at different branches of different banks and so on……

Suppose an officer is corrupt , he indulges in bad lending and misuses his delegated powers to earn bribe from borrowers he may not only cause bank to incur loss in crores of  rupees due to asset financed by him turning bad but he may also accumulate illegal money in huge quantity which he may use to increase business . Corrupt officers can easily motivate government offices to park their surplus fund in his branch. In such position though business growth is attractive there are greater chances of loan going bad and bank incurring loss. Trend of NPA exhibited by various banks in recent past is enough to indicate how corrupt bankers have spoilt the future of bank.

Politicians can talk of interview or that of group discussion or written test. They are habituated to select officers of their choice based on flattery and bribery only .They decide higher posting and higher assignment of an officer based on their relation with the officers, based on how are they treated on their visit to their offices and people of various caste and communities like an officer to be promoted. Politicians give even election ticket to a candidate based on his money power and muscle power. Those who have developed an art of speaking, art of speaking lie and making false promises and delivering false lectures can only win the heart of high command. 

The theory of politician if applied in banks and in other public sector organizations, the situation will go beyond control and result which will precipitate will lead the bank  from bad to worst. The conception and perception style of politicians in entirely different from that of bankers. Work culture in banks cannot be compared with that of politicians and other government officers who are least concerned with customer service. Politicians have already caused irreparable damage to banks through their vote bank politics during last few decades and it is they who have caused bad assets in Banks to grow to such a large extent. They may be rulers of the country but they have no moral right to preach sermons to bankers.

As such politicians cannot and should not be allowed to dictate policy of promotion. Rather if there are true leaders in various employee unions and in any officers association, they must protest the newly dictated promotion policy as also existing policy  and devise a better and transparent promotion policy removing all scope of discretion from all levels. It is disheartening to observe that union leaders have also become puppet in the hands of corrupt executives of government banks.

I once again reiterate that the tools of Interview, written test or group discussion or that of campus recruitment in higher scales as per whims and fancies of top bankers are killing the very work spirit of bank employees and all right thinking bankers must protest and strive for other ways to bring about desired reformation instead of becoming a puppet in the hands of clever politicians. To safeguard banks and to weed away bad performers and corrupt person from the system, I would like to suggest that  the work of inspecting officials should be made more effective and that of Industrial Relation Department, Audit department, Human Resource Department, CBI, CVC who take punitive action against erring employees should be made more active and efficient. No delay in punishment should be tool to remove bad performers and isolate them from the system and at the same time No delay in awarding a good officer should be used a tool to spread positive culture in government banks.

Finance Ministry has lately realised that slowly PS Banks are becoming fiefdom of CMDs and EDs as they had absolute authority in promotions and processes have already been tinkered to suit their requirements in each individual bank. 

 Therefore, government thought it fit to intervene and issued draft guidelines sometime in October / November 2011 for views.  Now on 5th December, 2011, they had issued the revised guidelines to all the PS Banks. But the fresh guidelines are almost old wine in new bottle.

bank management will not be able to recruit as per their whims and fancies, they will not be able to promote as per their sweet will or reject as per their whims in the name of merit, and they will not be able to earn wealth in the name of recruitment, promotion and transfers.

Provided

Unions and Association (who are called as protectors of bank officers but who are real enemy of bankers)  stop dancing as puppet of management and decide to extend support the new guidelines , of course after some modification on some issues like  lateral movement among banks , bank officers will get justice though late.

Hitherto top executives of almost all public sector banks were working as dictators by choosing flatterers for key posts and by giving humiliating treatment to devoted and talented seniors. They  say young officers will prove better and hence picked up freshers directly from campus of their choice for the posts in scale II, scale III and above. All officers were young when they were recruited; they forget this while choosing young for promotion. Arbitrarily and unjustifiably indeed, top executives sidelined the matured and experienced officers of two or three decades to serve their vested interest. 

Service quality of banks depends of inherent culture of employees and his ability to distinguish between good and bad borrowers but not purely on his volume of educational degrees. Experience is more precious than educational degrees so far as banking is concerned.

Now government has realized that increasing trend in volume of bad assets is primarily due to bad Human Resource Management. Government has rightly now suggested all banks to discard merit channel which gives scope for misuse of discretionary powers. I hope this policy if implemented honestly will restore the pride of bank officers and help in improving the overall health of banks.

After all, Health of Banks depends not on youth power or youth energy, but on mental power, maturity, experience, honesty of officer and ability to assess value of customers while taking lending decisions. Best Lending decisions are best taken not on the basis of financial parameters only but based on creditworthiness of the borrowers and which can better judged by matured bank officer only.

 Bank officers whose service is tested and attested in 5 to 30 years cannot be reassessed or better assessed in two or three minutes of Interview or group discussion.I therefore reiterate that power of choosing through interview or group discussion or written test is nothing but to rape the merit of officers and to promote the culture of flattery and bribery. 


When a simple educated person can run a state in the capacity of Chief Minister and a country why not well experienced officer can shoulder the responsibility of higher scale. It is worthwhile to mention here that if an officer in bank is flatterer , he or she can be promoted without any hurdle even if he or she is corrupt and caused huge loss to the bank.


This culture should be stopped forthwith to stop health of bank going from bad to worse. During last twenty years of so called reformation and so called merit based promotion policy , top management of public sector banks have spoilt the health of banks to such a large extent  that government has to provide capital to banks for their survival.

Corrupt officials of public sector banks have spoilt the future of not only employees working (excluding some flatterers and some corrupt officials) in the bank but also spoilt the health of the bank. Every year volume of Non Performing Assets called as bad assets in these banks is going up and up and due to this public sector banks need to provide more for bad debts. 

Increasing load of provisioning adversely affects the capital adequacy ratio. This is why government has to infuse capital from time to time. Executive directors and Chairmen & Managing Director of these banks frequently visit the office of Ministry of Finance with a bowl in their hand to bag alms (to request for capital infusion). 

Ministers or you say dirty politicians who misuse government banks for vote bank also extends sympathy and support to these bagging CEOs of banks.

After all it is public money which is bent lent to unscrupulous businessmen by corrupt bankers in nexus with corrupt politicians and powerful corporate and rich businessmen of the country. When the asset goes bad, the ultimate burden in shape of service charges and interest is loaded on poor and middle class families. Neither accountability is fixed on top bankers not strong legal action is initiated against high profile defaulters. 

 I say common men are more sufferers because banks usually extend all privileges to classic and high value customers at the cost of poor and low value customers. They lend money to affluent class i.e. to high value borrowers at low interest rate and similarly pay more interest to depositors who deposit in crores of rupees in banks.

Interest rate is different for different slabs depending on value and volume. But when high value borrowers go bankrupt, the load comes to common men. None of top ranked officers are punished for their wrong decisions. For big value advances, the most common excuse given by banks, businessmen and politicians is bad weather, global recession and monetary policy of RBI. 

Even capital infusion by government of India create burden on common men in form of various taxes and levies. Again tax reliefs and various subsidies are provided to rich and affluent class of people , not to common men.

Lastly, all types of award in shape of sacrifice on compromise or waiver or loan or write off is extended for providing relief to high value businessmen, not to poor and common men in easy way.

I submit below the story of fall and rise in Gross NPA of Public Sector Banks.

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% .Not 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 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.