Latest statistics on lending done by the banks in the first quarter released by RBI reveal that credit delivery in the first quarter was hardly 5% of quantum of credit made by the banks in the same quarter last year. Though banks have shown credit delivery of Rs.8000 crores in the last fortnight of June quarter , resultant increase in quarter to quarter in outstanding credit was hardly 3000 crores of rupees compared to more than Rs.50000 crores increase in June last year. This show how much slow are banks in credit delivery in the current financial year and undoubtedly it is a matter of concern for the economy and the country as a whole.
Most of the top rated banks are enhancing their lending by financing to big corporate houses. Most of the new borrowers added during recession period are belonging to owner groups of medium and large industries and trade houses, and that too in amounts in hundreds of crores per borrower. If number of accounts and amount involved in fresh credit disbursements is furnished by all banks month wise for last 12 months, it will become crystal clear how much loan amount has been disbursed during last one year to big corporate houses and to how many common people. It will also be proved that banks are indulged in simple window dressing or manipulating of figures to show improvement in lending.
It is true that there is some fall in credit demand in the market due to global recession. But it cannot be believed that entire economy and entire turnover in trade have come to standstill. It is bitter truth that major chunk of turnover is confined in the ands of a very few business houses and it is they who create crisis in the market. It is sad and condemnable that even our government is also worried about the crocodile pain of big business houses, and not about the real pain the common men have been suffering. Entire stimulus package being provided are directed to provide benefit and relief to only rich people. Similarly banks are also providing bulk credit to big business house so that chances of account becoming bad remain lesser. Only those who want to avail loan for consumption, home or education or vehicle for personal use are approaching banks for lending. Government of India has been putting pressure on banks to reduce lending rates. But in the present recessionary market it is not possible to increase genuine lending even if the rate of interest is zero.
Yes it is worthwhile to mention here that those who are bad borrowers, who will invariably default in repayment of loan are able to manage the branch manager of a PSU bank and avail loan for any false or right purpose by extending some gifts to Branch Manager in cash or in kind. Such bad advances will ultimately contribute in increase in Non Performing Assets , NPA of the bank as have been happening for last so many years under targeted lending programmes of Government.
Besides honest and true branch manager of a bank is very much afraid of making new finance because probability of account turning bad seems more than the account proving to be healthy asset for the bank. The main reason behind such thinking is that there is practically no full proof method or legal effective steps or any intimidating weapon in the almirah of the bank to recover the loan from defaulting borrowers.
Banks have in fact to depend on the mercy of the borrower so far as repayment of the loan is concerned. Government has failed completely in ensuring the effectiveness of its legal recourse of action.
To add fuel to fire our politicians have polluted the repayment culture by announcing one after other waiver of loans and putting pressure on banks for entering into compromise settlements with will full defaulters as if government advises the banks to surrender fully before the borrowers. There is no fear in the mind of borrowers and they repay the loan as per their whims and fancies. Banks have got no control mechanism, other than persuasions and bagging in front of bad borrowers. This is why there has been poor growth in lending in banks whereas on the contrary there has been quantum jump in NPA of the bank
And it is only due to bulk lending to big corporate house, banks are able to reduce the NPA percentage wise compared to gross advances which helps the bank to project rosy picture and attractive balance sheet.
But the million dollar question is how long such window dressing, concealment of bad assets or restructuring of bad loans will help bank in survival. Lastly banks have to fail as their counterparts are failing in USA and other countries.
Obviously government has to provide effective tools to banks so that they can recover the bad loans and make fresh finance without any fear of action from their controlling bosses. Government has to understand that any lending by banks has to be repaid by borrower and those who fail to do so should be treated as criminal and treated according in quickest time. When borrowers are serious in making repayment of loan they avail from banks, bank will surely become liberal in lending and there will be definite and solid growth in bank’s lending
In conclusion we can say that to improve lending by banks , government has to stop political intervention, treat bank advance as advance , not as charity or subsidy and ensure quickest method of recovery of loan from willful defaulting borrower . This will create fearlessness in bankers and seriousness among loan seekers. In the long run, positive culture will penetrate in the minds of both bankers and borrowers and there will be real and consistent growth in lending. Not only big corporate houses but small traders and farmers will be able to get immediate loan facility from bank.
Last but not the least government has to develop quickly the Permanent Identification Number of any citizen so that multiple financing to the same borrower may be stopped at the earliest. There should be complete ban on opening of multiple accounts and any individual or any firm can open account in only one branch and in only one bank. This will helpful in stopping unhealthy lending and compel bad borrowers to repay the dues of a particular bank first and then only he can imagine of opening an account at other bank or seek loan facility. As of now, banks are so much ill equipped to stop multiple financing that bad borrowers take advantage of it and they get success in taking advances at various banks against the same asset and for the same purpose which is very much harmful for the bank and the greatest impediment in real growth of lending.
12th July 2009
Saturday, July 11, 2009
Friday, July 10, 2009
Why poor credit growth in banks
Most of the top rated banks are enhancing their lending by financing to big corporate houses. Most of the new borrowers added during recession period are belonging to owner groups of medium and large industries and trade houses, and that too in amounts in hundreds of crores per borrower. If number of accounts and amount involved in fresh credit disbursements is asked by all banks month wise for last 12 months, it will become crystal clear how much loan amount has been disbursed during last one year and to how many people. It will also be proved that banks are indulged in simple window dressing or manipulating of figures to show improvement in lending.
As a matter of fact there is steep fall in credit demand in the market. Only those who want to avail loan for consumption, home or education or vehicle for personal use are approaching banks for lending. Government of India has been putting pressure on banks to reduce lending rates. But in the present recessionary market it is not possible to increase genuine lending even if the rate of interest is zero.
Yes those who are bad borrowers, who will invariably default in repayment of loan will manage the branch manager of a PSU bank and avail loan for any false or right purpose by extending some gifts to Branch Manager in cash or in kind. Such bad advances will ultimately contribute in increase in Non Performing Assets , NPA of the bank as have been happening for last so many years under targeted lending programmes of Government.
Besides honest and true branch manager of a bank is very much afraid of making new finance because probability of account turning bad seems more than the account proving to be healthy asset for the bank. The main reason behind such thinking is that there is practically no full proof method or legal effective steps or any intimidating weapon in the almirah of the bank to recover the loan from defaulting borrowers.
Banks have in fact to depend on the mercy of the borrower so far as repayment of the loan is concerned. Government has failed completely in ensuring the effectiveness of its legal recourse of action.
To add fuel to fire our politicians have polluted the repayment culture by announcing one after other waiver of loans and putting pressure on banks for entering into compromise settlements with will full defaulters as if government advises the banks to surrender fully before the borrowers. There is no fear in the mind of borrowers and they repay the loan as per their whims and fancies. Banks have got no control mechanism, other than persuasions and bagging in front of bad borrowers. This is why there has been poor growth in lending in banks whereas on the contrary there has been quantum jump in NPA of the bank
And it is only due to bulk lending to big corporate house, banks are able to reduce the NPA percentage wise compared to gross advances which helps the bank to project rosy picture and attractive balance sheet.
But the million dollar question is how long such window dressing, concealment of bad assets or restructuring of bad loans will help bank in survival. Lastly banks have to fail as their counterparts are failing in USA and other countries.
Obviously government has to provide effective tools to banks so that they can recover the bad loans and make fresh finance without any fear of action from their controlling bosses. Government has to understand that any lending by banks has to be repaid by borrower and those who fail to do so should be treated as criminal and treated according in quickest time. When borrowers are serious in making repayment of loan they avail from banks , bank will surely become liberal in lending and there will be definite and solid growth in bank’s lending
Danendra jain
11th July 2009
As a matter of fact there is steep fall in credit demand in the market. Only those who want to avail loan for consumption, home or education or vehicle for personal use are approaching banks for lending. Government of India has been putting pressure on banks to reduce lending rates. But in the present recessionary market it is not possible to increase genuine lending even if the rate of interest is zero.
Yes those who are bad borrowers, who will invariably default in repayment of loan will manage the branch manager of a PSU bank and avail loan for any false or right purpose by extending some gifts to Branch Manager in cash or in kind. Such bad advances will ultimately contribute in increase in Non Performing Assets , NPA of the bank as have been happening for last so many years under targeted lending programmes of Government.
Besides honest and true branch manager of a bank is very much afraid of making new finance because probability of account turning bad seems more than the account proving to be healthy asset for the bank. The main reason behind such thinking is that there is practically no full proof method or legal effective steps or any intimidating weapon in the almirah of the bank to recover the loan from defaulting borrowers.
Banks have in fact to depend on the mercy of the borrower so far as repayment of the loan is concerned. Government has failed completely in ensuring the effectiveness of its legal recourse of action.
To add fuel to fire our politicians have polluted the repayment culture by announcing one after other waiver of loans and putting pressure on banks for entering into compromise settlements with will full defaulters as if government advises the banks to surrender fully before the borrowers. There is no fear in the mind of borrowers and they repay the loan as per their whims and fancies. Banks have got no control mechanism, other than persuasions and bagging in front of bad borrowers. This is why there has been poor growth in lending in banks whereas on the contrary there has been quantum jump in NPA of the bank
And it is only due to bulk lending to big corporate house, banks are able to reduce the NPA percentage wise compared to gross advances which helps the bank to project rosy picture and attractive balance sheet.
But the million dollar question is how long such window dressing, concealment of bad assets or restructuring of bad loans will help bank in survival. Lastly banks have to fail as their counterparts are failing in USA and other countries.
Obviously government has to provide effective tools to banks so that they can recover the bad loans and make fresh finance without any fear of action from their controlling bosses. Government has to understand that any lending by banks has to be repaid by borrower and those who fail to do so should be treated as criminal and treated according in quickest time. When borrowers are serious in making repayment of loan they avail from banks , bank will surely become liberal in lending and there will be definite and solid growth in bank’s lending
Danendra jain
11th July 2009
Friday, July 03, 2009
Finance Minister has to reply
Rebate in Income Tax on Home Loan Interest, Home loan Instalment, Reduced rate of lending for Home loan upto 30 lacs
Why all benefits to those home seekers who are rich and who can afford repayment of loan worth Rs.30.00 lacs and also margin of 20% needed for loan. Naturally such person must have annual income of at least more than five to 8.00 lac to become eligible for finance of Rs.20.00 lac to Rs.30.000 lacs.
Why all types of rebates for such rich class people whereas poor who cannot afford repayment of loan of even Rs.2.00 lac are fully neglected. Obviously rebates are being allowed to win the hearts of real estate developers and home builders.
Why not government comes out with affordable housing project for poor and middle class person whose annual income is less than Rs.2.00 lacs. Government has large chunk of land under its control and by the disinvestment proceeds they can acquire land for building small houses at cheaper rates.
Similarly there is pressure for reduction in lending rate of interest and why not stress for recovery of bad loans which is rising in momentum every year and which has become a cancer for banking industry. Waiver of loan or compromise settlement with poor and middle class farmer is understandable. But why banks are forced to compromise with willful defaulting industrialists and traders.
Until there is culture of recovery supported by government of India, any bank cannot imagine of healthy lending. Bank is therefore forced to opt for parking surplus fund with RBI at 3.5%. After all if a bank goes bankrupt it is the government, which has to infuse capital for its survival. How many times will government provide ventilator to sick bank? Why not defaulters are treated as criminals excluding the case of natural calamity?
What is control of disproportionate increase in assets of top bank executives of various banks?
Has government any plan to verify the credentials and assets of GM of any bank before promoting him to ED or CMD?
There is provision for rural posting for all officers to be promoted to higher scale. Have you ever verified whether banks are using this rural provision for punishing those officers who do not flatter to their bosses?
Are all GM or DGM or AGM having rural exposure before his or her promotion?
Are banks giving promotion to honest officers or sidelining them as happens in other government departments?
What is the need of Interview marks in Promotion marks when bank has tested and attested the services of any officer for more than a decade or two or three. Don’t you agree that interview marks gives scope for manipulation and injudicious promotion to corrupt officers, which give rise to flattery culture?
Is there any remedy for officers who are unjustifiably rejected in promotion process?
Are banks showing real status of bad loans in their balance sheet?
Hiding of NPA or recovery of NPA-- which is getting importance in PSBs
Net NPA ratio of bank is being projected as less than 1% . Gross NPA ratio is little more. But the question is whether Gross amount of NPA has been increasing every year and whether the same is within control of individual banks, and whether they are capable to monitor bad assets and adequately capacitated to recover the bad loan from bad borrowers. Banks have been showing lesser NPA ratio by increasing total advances of the bank and not by positive recovery from existing bad loan accounts.
Are you happy with attractive balance sheets of the bank or you also doubt their correctness as happened in case of Satyam Computers which was awarded twice for best Corporate Governance and which company was rated high by best Credit Rating Agencies of the country.
Do you really believe that private banks are not better than PSBs so far as standard of customer service, sincerity of officer working in banks and health of banking assets are concerned? It is possible that CMD of Private banks do not oblige FM or Government of India or RBI governor by reducing lending rates whereas CMD of PSB compete among each other to become front runner in the good book of FM. I remember CMD of Indian bank was considered as the best for more than a decade and government came to senses only when fraud of amount of Rs.1200/ crore was detected.
It is desirable to find out as follows:
Total advances as on 31.03.2006 with number of borrower accounts
( it is assumed that finance made during last three years are standard )
Out of which total amount of NPA in how many accounts
Finance made in the year
Total Ac and Total amount
Out of which NPA a/c & Amt.
2001
2002
2003
2004
2005
2006
Out of which written off / sacrificed during the year 2006 –07 , 07-08 and 08-09.
Name off officers who sanctioned the loan in the beginning and who subsequently monitored and renewed the same. Then find out the list of those officers whose name appear in more than 100 or 50 or 10 (Benchmark fixed by government) bad accounts.
Whether the NPA account has been restructured and if yes why?
Why all benefits to those home seekers who are rich and who can afford repayment of loan worth Rs.30.00 lacs and also margin of 20% needed for loan. Naturally such person must have annual income of at least more than five to 8.00 lac to become eligible for finance of Rs.20.00 lac to Rs.30.000 lacs.
Why all types of rebates for such rich class people whereas poor who cannot afford repayment of loan of even Rs.2.00 lac are fully neglected. Obviously rebates are being allowed to win the hearts of real estate developers and home builders.
Why not government comes out with affordable housing project for poor and middle class person whose annual income is less than Rs.2.00 lacs. Government has large chunk of land under its control and by the disinvestment proceeds they can acquire land for building small houses at cheaper rates.
Similarly there is pressure for reduction in lending rate of interest and why not stress for recovery of bad loans which is rising in momentum every year and which has become a cancer for banking industry. Waiver of loan or compromise settlement with poor and middle class farmer is understandable. But why banks are forced to compromise with willful defaulting industrialists and traders.
Until there is culture of recovery supported by government of India, any bank cannot imagine of healthy lending. Bank is therefore forced to opt for parking surplus fund with RBI at 3.5%. After all if a bank goes bankrupt it is the government, which has to infuse capital for its survival. How many times will government provide ventilator to sick bank? Why not defaulters are treated as criminals excluding the case of natural calamity?
What is control of disproportionate increase in assets of top bank executives of various banks?
Has government any plan to verify the credentials and assets of GM of any bank before promoting him to ED or CMD?
There is provision for rural posting for all officers to be promoted to higher scale. Have you ever verified whether banks are using this rural provision for punishing those officers who do not flatter to their bosses?
Are all GM or DGM or AGM having rural exposure before his or her promotion?
Are banks giving promotion to honest officers or sidelining them as happens in other government departments?
What is the need of Interview marks in Promotion marks when bank has tested and attested the services of any officer for more than a decade or two or three. Don’t you agree that interview marks gives scope for manipulation and injudicious promotion to corrupt officers, which give rise to flattery culture?
Is there any remedy for officers who are unjustifiably rejected in promotion process?
Are banks showing real status of bad loans in their balance sheet?
Hiding of NPA or recovery of NPA-- which is getting importance in PSBs
Net NPA ratio of bank is being projected as less than 1% . Gross NPA ratio is little more. But the question is whether Gross amount of NPA has been increasing every year and whether the same is within control of individual banks, and whether they are capable to monitor bad assets and adequately capacitated to recover the bad loan from bad borrowers. Banks have been showing lesser NPA ratio by increasing total advances of the bank and not by positive recovery from existing bad loan accounts.
Are you happy with attractive balance sheets of the bank or you also doubt their correctness as happened in case of Satyam Computers which was awarded twice for best Corporate Governance and which company was rated high by best Credit Rating Agencies of the country.
Do you really believe that private banks are not better than PSBs so far as standard of customer service, sincerity of officer working in banks and health of banking assets are concerned? It is possible that CMD of Private banks do not oblige FM or Government of India or RBI governor by reducing lending rates whereas CMD of PSB compete among each other to become front runner in the good book of FM. I remember CMD of Indian bank was considered as the best for more than a decade and government came to senses only when fraud of amount of Rs.1200/ crore was detected.
It is desirable to find out as follows:
Total advances as on 31.03.2006 with number of borrower accounts
( it is assumed that finance made during last three years are standard )
Out of which total amount of NPA in how many accounts
Finance made in the year
Total Ac and Total amount
Out of which NPA a/c & Amt.
2001
2002
2003
2004
2005
2006
Out of which written off / sacrificed during the year 2006 –07 , 07-08 and 08-09.
Name off officers who sanctioned the loan in the beginning and who subsequently monitored and renewed the same. Then find out the list of those officers whose name appear in more than 100 or 50 or 10 (Benchmark fixed by government) bad accounts.
Whether the NPA account has been restructured and if yes why?
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