Indian
banks' advances and deposits grew at a slower pace so far this fiscal year that
started in April, compared with the similar period last year, as a sluggish
economy dampened demand for credit.. As of October 19,
credit grew 2.6 percent to Rs 48,15,938 crore since the start of April,
compared with a growth of 4.9 percent in the year-ago period, data from the
Reserve Bank of India showed on Wednesday.
I do not agree with the
excuse given by clever bankers that there is economic slowdown which has
resulted in lesser credit growth in the current financial year. There is no
slowdown in the economy and hence it is foolish to blame economy or to blame
the global recession for slow rate of credit growth. It is the culture of
Indians to blame other countries, to blame environment or interest rate or natural
calamities for all its inefficiencies and bad intention for poor performance
resulting in poor credit growth.
In fact there are still
hundreds of branches of
many banks in India which have achieved credit growth of more than 50 percent or even more than 100 percent in some
cases .Banks like Axis Bank, HDFC bank , Kotak bank ICICI bank invariably book
a credit growth of more than 30 percent in a year whereas public sector banks
can book hardly 15 percent credit growth
and that too by mostly window dressing and by sanctioning of short term loan in
the last fortnight of the quarter or year .The million dollar question
therefore arises ,”Is economic slowdown only for public sector banks?
In the recent past, pressure
on bank officials at all levels has increased to a great extent and this has
resulted in creating panic in most of the bank’s branches. Officers who earned
huge wealth by sanctioning loan to unscrupulous companies have actually got
retired or not holding the top posts in the bank. Now when due to their ill
motivated lending, account has become bad, entire pressure for recovery of
money from such willful defaulters and recalcitrant borrowers lies on innocent
and inexperienced officers posted at branches. They neither get time, nor do
they have enough knowledge of how to sanction loan and how to recover money
from bad borrowers. There is clear message and crystal clear impression among
bank employees and in in banking arena that erring officers get promotion and
recognition at all levels whereas innocent and good performers are sidelines,
rejected and tortured.
In fact there is
always a fear of account going bad in the mind of credit processing officials
if the integrity and capacity of the loan seekers appears to be bad or doubtful
though they are ready to offer desired bribe to loan sanctioning officials. In
the olden days even if the loan account sanctioned by a branch head turned bad
they used to conceal the same as long as they were posted in the branch and
even their successors were not permitted to declare a bad account as Non
performing assets as long as higher authorities permitted on phone. But in the
age of CBS and when system is mechanically recognizing (if not tempered by
clever bankers) generating NPA, they are afraid of getting exposed during their
tenure only and hence they avoid sanctioning loan to such loan seekers.
On the contrary they are
not likely to get desired bribe from loan seekers who are good in intention and
who are determined to repay the loan if they are sanctioned. , Obviously good
businessmen cannot offer handsome gifts and big amount of bribe to credit
officials from branch level to higher offices. They cannot flatter to bankers
for months together and hence they think it wise to arrange credit from informal
sources like friends and relatives, private banks or local money lenders. In
fact good businessmen avoid loan from public sector banks because of many
reasons such as inordinate delay in clearance of project and sanction of loans,
administrative hurdles and lack of knowledge as also lack of capacity of credit
processing officers to assess and understand the economic feasibility and
technical viability of any project.
I therefore do not agree
that rate of interest is any hurdle in growth of credit in banks. When private
banks which are accusing of charging higher rate of interest and charging so
many other service fees can grow at considerable higher rate, you can say at
least double the rate of state run banks, why not state run banks can achieve
good credit growth .After all load of interest in the balance sheet of a
businessman is insignificant. When the businessmen can earn profit at 20 to 25
percent per month on the capital they receive from bank, they do not hesitate
in paying interest as bankers demand.
People were ready to
avail vehicle loan or home loan even when CITY bank used to charge interest
even more than 30 percent per year. Even now various banks are offering
different rate of interest on different loan products. But majority of valued
loan seekers hardly gives any importance to rate of interest banks are
charging, but they are concerned with quality of service and capacity of
bankers to sanction the desired loan in shortest period of time without
demanding any bribe of gift in lieu of sanction of loan.
So far as bad borrowers
are concerned they are always ready to serve bank officials as they desire for
getting approval of loan they desire.. .Bad borrowers manage Chartered
Accountants to prepare balance sheet and other financial papers as per need of
banks. And for this purpose they are ready to pay any amount of fees to CAs.
Similarly bad borrowers manage advocates to prepare good legal report to suit
the bankers even if the documents of paper related to title of landed
properties are bad or fake. These bad borrowers can convince valuers to submit
valuation of property at inflated rate even if the property is not even
marketable. Bad loan seekers can serve any and all officials related to
sanction of loan by using power of money, woman and wine. A banker can be in
most of the cases motivated for sanction of loan by ill-motivated loan seekers
in many ways by many means suitable to loan sanctioning officers. Sometimes
even flattery to officer or his family for a few days and few months may also
serve the purpose. Sometimes managing deposits for the branch from other
sources may help in their task. When bankers as well as loan seekers are bad,
credit growth takes place even if the economy is facing slowdown or there is
global slowdown or there is natural calamity in the country.
Obviously when policy
paralysis is the root cause of poor performance of the government and for poor
GDP growth in the country as admitted by even Finance Minister, it is the
collapse of credit sanctioning processes at all levels in the bank and non
–clearance of pending credit proposals at various levels in the bank due to
poor knowledge or due to bad intention is the root cause of poor credit growth
in public sector banks.
During last two decades of
reformation banks have completely failed to maintain the quality of manpower
and ensure adequate manpower at the branches. They have failed to ensure
equitable and justifiable deployment of manpower. They might have won many
awards for imparting best training to their manpower by impressing the
assessing authorities i.e. award giving entities. The bitter truth is that
ninety percent of officers do not have enough knowledge and expertise of
sanctioning a loan. This is why, there is either poor credit growth in branches
or there is bad credit growth in the branches.
In brief, credit growth
will be poor when loan seekers (in purpose of loan or in intention to repay)
are good and bank officers are bad ( in skill or in intention ) or when bank
officers are good but loan seekers are bad and incompetent to execute the
project they pretend to execute. Credit growth has never stopped for branches
or for any bank where bank officers and borrowers both are good or both are bad
and ill-motivated. Bank officers holding top post in the bank create the
culture among field functionaries and when they are corrupt and incompetent;
the same culture is reflected and percolated down the line. Because it is the
gang of top bankers who choose officers for various branches as per their whims
and fancies and it is they who promote juniors as per their sweet will with or
without taking into account the merit of officers. This is the reason that in
most of the banks where officers do not taper with the system and who do not
indulge in window dressing , credit growth is poor and growth in NPA is more
than recovery from defaulters.
To add fuel to fire,
legal system in the country is so weak that bankers are unable to recover the
money even from rich borrowers who have enough capacity to repay the bank’s
loan in time.
Politicians have
spoilt the banking culture throughout the country by resorting to loan mela at
the cost of quality and by announcing loan waiver or loan settlement scheme
which has demotivated and discouraged the borrowers who are honest in repayment
and who used to repay the dues in time.
Thirdly none of top
officials are punished even if it is found during inquiry that they were prima
facie responsible for bad lending and for account becoming NPA. None of
government officials are punished even when it is found that they put hurdles
and they delay in recovery of bank’s loan. None of judges or magistrates or
police officials are ever punished for inordinate and willful delay in disposal
of court cases or that of complains and requests for help submitted to
administrative offices by bankers to expedite recovery of dues.
This is why several lac
of cases are pending and languishing in the offices of certificate officers,
district magistrates, lower courts, Debt Recovery Tribunals and also in High
courts for years and decades.
Lastly, onus of
creating environment in banks as well in the country conducive for credit
growth and for GDP growth lies on the shoulders of politicians who rule the
country and who rule various state governments. If politicians are not serous
on real development of their area, no power can ensure safe credit growth,
consistent, equitable and judicious GDP growth, and accelerated justice from
court of law, punitive action against erring officials, and punishment to
defaulters and finally a real prosperity, and welfare of common men.
| Deceleration in credit growth sharper for state-run banks | |||||||||||||||||||||||||
| BS Reporter / Mumbai Oct 30, 2012, 00:12 IST The deceleration in credit growth at the end of September is sharper for public sector banks (PSBs) compared to those in the private sector, said Reserve Bank of India’s (RBI) Macroeconomic and Monetary Developments for second quarter review 2012-13 released on Monday. “At the bank-group level, the deceleration was particularly sharp for PSBs. As PSBs are the largest lenders in terms of credit, deceleration in their credit growth pulls down overall credit expansion of scheduled commercial banks taken together,” said the review. According to RBI, the deceleration in credit growth reflected the slack investment demand, slowing economic activity and, more importantly, deteriorating credit quality, especially in the case of PSBs. The review also points out that private sector banks, which registered strong credit growth in the comparable period last year, continued to witness a robust credit growth. But the credit growth of foreign banks registered an even sharper deceleration.  There are also concerns on asset quality and this is particularly grave for PSBs. “The ratio of gross non-performing assets (NPAs) to gross advances and the net NPA to net advances that had increased significantly during 2011-12, rose further in the first quarter of 2012-13 across the bank groups. The increases in these ratios were maximum for PSBs, which account for the major part of bank advances,” said the review. It added restructuring of standard assets also increased significantly for PSBs during the first quarter of 2012-13. According to bankers and experts, the NPA cycle is yet to peak out due to factors like drop in the productivity of Indian corporates, larger proportion of long-term loans, exposure to sectors which are cyclical in nature and aggressive lending to agriculture sector. In fact, bankers and experts are of the view that the stress in assets are expected to continue at least for the next 12 months. According to RBI, deterioration in assets quality and in the macroeconomic conditions resulted in added risk aversion in the banking sector. This led to a portfolio switch from credit creation to investments in government securities on the back of large government market borrowing. “The scheduled commercial banks were holding around 28 per cent of their Net Demand and Time Liabilities in Statutory Liquidity Ratio investments at end-September 2012,” said the review. http://www.business-standard.com/india/news/deceleration-in-credit-growth-sharper-for-state-run-banks/491097/ Credit growth to remain at 15.1% this fiscal: CARE Research
Published in Hindu Business Line on 04.111.2012
MUMBAI, OCT. 3:
Highlighting the stress in the Indian banking industry due to weak economic activity, CARE Research said credit growth for the year 2012-13 will remain at 15.1 per cent.
Credit growth had declined to 17.7 per cent in August compared with 20.8 per cent in August 2011.
According to the report, deposit growth for FY13 will be at 13.3 per cent on the back of slowing domestic savings due to persistent inflation. In addition, incremental credit-deposit ratio declined on higher deposit mobilisation and low credit off-take.
It also expects gross non-performing assets (NPAs) to increase to 3.3 per cent from 2.9 per cent in FY12, while the net interest margins (NIMs) are estimated at 3 per cent for FY13 as against 3.2 per cent in FY12.
Further, share of incremental credit to infrastructure (as a percentage of total incremental industry credit) fell from 35.5 per cent in July 2011 to 29.6 per cent in July 2012 on continued stress in power, aviation and roads sectors.
The research arm of CARE Ratings also expects more restructuring in the power sector on account of approval by the Cabinet Committee on Economic Affairs to the financial restructuring of state distribution companies.
Maintaining the GDP estimates for FY13 at 5.86 per cent, CARE Research expects no rate cut in the second-quarter review of monetary policy due on October 30 on account of easing liquidity and upside risk to food inflation on weak monsoon (low rainfall) and recent increase in fuel prices.
Chidambaram urges colleagues to overcome policy paralysis, says Rs 7,500 cr investments stuck in red tapism ( published in economic times )
NEW DELHI: Finance Minister P Chidambaram has urged his cabinet colleagues to "get together" in order to overcome policy paralysis, pointing out that 700 projects withinvestments of Rs 7,500 crore are stuck due to delays caused by the absence of regulatory approvals. The finance minister, who was making a presentation to his cabinet colleagues, said the delays were on account of the absence of environmental and other regulatory approvals as well as problems stemming from land acquisition, difficulty in arranging financing and and arranging fuel supply.
"If the 78 of us can get together for the next five months, 2013-14 can be a happy year," Chidambaram is learnt to have told his colleagues, while making the presentation on the "Current state of the economy" on Thursday. The government is particularly concerned about investments, from domestic and foreign, drying up. The recent surge of reform measures, many of them procedural in nature, is aimed at breaking the logjam and removing hurdles in investment flows.
In a rare admission by the government, the FM has acknowledged that projects stuck across key sectors as on September 2012 had reached the highest since 2005, when the number of such delayed projects was less than 100. Policy paralysis and bureaucratic delays peaked between September 2011 and June 2012 - a period in which Pranab Mukherjee, now the President of India was the finance minister - when as many 300 projects came to a halt with approvals held up at various government departments.
Chidambaram was speaking to members of the reconstituted cabinet. Parts of the presentation, notably the fact India ran the risk of being downgraded to junk by rating agencies if the government did not get its act together were reported by the Times of India in its Friday edition.
Elaborating on how public and private sector investments have both plummeted, the finance minister cited data collated by the Centre for Monitoring the Indian Economy (CMIE) showing that in the third quarter of 2012 new investment proposals were less than Rs 2000 billion ( Rs 2,00,000 crore), of which government investments were down to less than Rs 500 billion ( Rs 50,000 crore) . The slide after December 2010 when new projects were Rs 4,000 billion ( Rs 4,00,000 crore). CMIE uses a statistical technique known as rolling or moving averages for its calculations.
The worrying fiscal deficit numbers have added to the government's woes as revenue collections have been below expectations and dwindling investments meant that the immediate future was bleak, according to the presentation. The finance ministry has already revised the targeted fiscal deficit numbers to 5.3% from the figure of 5.1% in the 2012 budget presented by Mukherjee. The fiscal consolidation roadmap unveiled by the FM on October 29 calls for reducing the fiscal deficit to 4.8% for the fiscal ending 31 March 2014 and to 3% by 2016-17.
The news on the trade front is even worse. While the trade deficit is projected to be a negative $180.3 billion, the current account deficit is expected to touch a negative $ (-)70.3 billion by the end of this financial year.
Prime Minister Manmohan Singh has called upon his cabinet colleagues handling the ministries ofenvironment, coal, power, oil and gas and the regulatory authorities to fast-track approvals and gets the stranded projects back on track within the next five months of the current fiscal to get the economy back on the growth trajectory.
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