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Public Interest Exclusive
PK's Romp through India's Financial Sector
The way our public sector banks are run would shock the alien PK no less than our religious hypocrisy did
 
In the movie PK, the alien played by Aamir Khan stumbles upon many contradictions, deceit and hypocrisy in how we practise our different religions. And, yet, as a nation, we stumble along in a largely peaceful manner, dealing with occasional bouts of ugly ‘intolerance’ while remaining rather backward and poor. But PK would have been just as shocked to find that, we, Indians are expected to stumble along the same path when it comes to the highly regulated and red-tape-bound world of modern business and finance. If I attempt to list all the issues, it would run into several tomes. Instead, let us just trawl through a couple of headlines of the past fortnight and you will know what I mean. 
 
On 28th January, Business Standard reported that shareholders of State Bank of India (SBI) were crying foul over the giant bank refusing to provide e-voting facilities at its forthcoming extraordinary general meeting (EGM) called to decide on raising fresh capital. E-voting was made mandatory by the Securities & Exchange Board of India (SEBI) in 2014; but the paper tells us that SBI has been in violation of the rule ever since. The Bank says that it is not a company under the Companies Act but is governed by its own statute. Wasn’t all this discussed when the listing rules were changed? Since SBI is listed on stock exchanges since 1959, isn’t it fair to assume that someone in SEBI would have studied the implications of SBI going by its own Act? Who decided that if the SBI Act conflicts with the Companies Act or the SEBI Act, then the Bank’s statute will prevail? 
 
Well, quite simple. PK would have discovered that there is a caste system when it comes to listing of companies in the market. Public sector undertakings (PSUs), owned by the government of India, are the Brahmins. They are not particularly popular with ordinary investors; but government ownership ensured that they were exempted from a whole clutch of rules applicable to private companies. In the original burst of economic liberalisation in the 1990s, these companies were allowed to list with sketchy prospectuses, vague disclosures, exemption from minimum listing of capital requirement (many PSUs had less than 2% of their shares listed). 
 
After 25 years of existence, the regulator still does not have the courage to force PSUs to comply with rules regarding appointment of independent directors. Bureaucrats posted as SEBI chairmen rarely dare to question powerful Union ministers who the PSU behemoths report to. As Gurpur wrote in an article (“Why Are PSUs Being Spared from Penalties”) on Moneylife’s online edition(16 December 2015), 25% of listed PSUs do not have independent directors. They have also not bothered to comply with the rule regarding women directors; but SEBI, which penalised private companies for not meeting the mandatory women director norm, has not touched PSUs.
 
SBI has now told investors that e-voting rules also do not apply to it. Consider the enormity of this stand by the Bank which is considered a banker to the government. It is saying that its share can be traded on a single screen across the country and abroad, but its ‘part owners’, who cannot be physically present at the meeting effectively, have no voting rights unless they can send in a proxy. Business Standard writes that the listing regulations use the word ‘listed entity’ since 2015 which would cover SBI. It further says that other banks, which are not ‘companies’ under the Act, have complied with the rules, so why shouldn’t SBI?
 
If PK were to explore the problem of bad loans in Indian banking, would he even begin to understand what is going on? What if he landed on earth in 2013 when the governor of Reserve Bank of India (RBI) Raghuram Rajan cautioned banks about window dressing bad loans? “You can put lipstick on a pig but it doesn’t become a princess,” said the governor; PK probably noticed a few bank chairmen smirking. Two years later, SBI chairman Arundhati Bhattacharya, who is reported to be on the shortlist to become SEBI chairman, has virtually told him not to preach. 
 
She stirred things up at a public lecture on 12th January by saying what amounts to, ‘Don’t look at us; everybody is to be blamed for the bad loans’. A report in The Hindu Businessline quotes her as saying, “Promoters were bidding aggressively riding on the back of good times around 2007-08 and some of them were diverting funds out of the well-run units hoping the money flow would continue forever.” The banks, she said, “…extended loans for long duration, as much as 30 years, while hoping the funds would be recovered in 10 years or so. While the regulator is to blame for allowing such a dispensation, the government was to take the blame for policy uncertainty like cancellation of telecom licences.”  
 
It is all very well to blame RBI and corrupt politicians (for the cancellation of 2G telecom licences) but does it absolve bankers for not knowing how to manage assets, liabilities and maturity of funds. How can banks lend for 30 years and expect repayment in 10? Whatever she meant, the statement sounds most irresponsible. As for diversion of funds, that buck stops at banks. Lenders, who do not hesitate to use the most coercive means to recover money from small borrowers and individuals, have extremely cosy equations with industrialists and large borrowers. Diversion of funds, fresh funding for new entities set up through such diversion, and, later, the ever-greening of bad loans, happens due to collusion with bank management. On the other hand, even good borrowers, who cannot pull strings, are made to run the gauntlet of endless conditions, sureties, personal guarantees, arm-twisted to buy insurance products and then harassed over release of working capital or subsequent loan tranches; they often drive businesses to losses.
 
If this is the SBI chairman’s response to the dangerously high bad loans of public sector banks (PSBs), it is no surprise that investors are dumping the stocks. In an article titled “What Does the Carnage in Public Sector Bank Stocks Mean?Moneylife’s digital edition pointed out that stocks of many PSBs are down 60% to 67% in the past calendar year. While dual regulation, political interference and lazy regulation may all be responsible, there is no escaping the fact that bank chairmen are not selected on merit and not held accountable for disastrous loans or collusion with promoters. The same crony system, which manipulates appointments, also protects bank chairmen by ensuring that they can do no worse than getting a letter of displeasure for the most flagrant corruption. 
 
The beneficiaries of this mess are the nimble-footed private banks. They have no problems managing funds, keeping bad loans in check and dumping dubious assets long before they need to be written off. They are also able to extract higher costs from depositors for services that were part of the basic banking package and ought to have become cheaper with core banking. They can do this, because inefficient PSUs, desperate to shore up balance sheets, match the charges levied on customers. 
 
PK would have noticed that the ultimate sucker is the average Indian. The cost of frequent recapitalisation of banks is borne by all, including hundreds of million Indians who do not have a bank account. When the exchequer pays to capitalise banks, we are indirectly paying for the big birthday bashes and ostentatious weddings of defaulter industrialists. Middle-class account-holders get smacked twice over—the bank enjoys a fat spread of 6%+ on their savings account and still extracts a price for services provided, including maintaining the account or receiving text messages of transactions. But PK would notice that most of them don’t even realise how they are being had!
 

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COMMENTS

Raja Laks

1 year ago

One word used as a reference and the crux of the article is ignored and people are going for the throat of the author just for that one word.

ragimasalvad v rao

1 year ago

It is alright to critise
What is your advise
Sbi is still largest traded sto ck

Sucheta Dalal

1 year ago

For all the outraged Brahmins out her, do get off your high horse.

My mother, a brahmin, has no issues with what is written an she is 81 !!

Do do try and learn perspective and dont jump to conclusions -- that is far more casteist and proves the point!

REPLY

SATISH MADHAV

In Reply to Sucheta Dalal 1 year ago

Your reply is far more juvenile than your bigoted view on Brahmins you tried to slip into your article. Keep your pontification about "perspectives" to yourself.
Good bye to Moneeylife and good riddance.

Janakiraman Rajalakshmi

In Reply to SATISH MADHAV 1 year ago

What a relief ! Bigots would never be missed.

Janakiraman Rajalakshmi

In Reply to Sucheta Dalal 1 year ago

It would not be amiss to narrate something done by some brahmins residing in Mylapore when Rajendra Chozhan was the King.

Thanks to Sri.Balakumaran the well known Writer.

A brief summary:-

It was full of thickets & mangrove swamp in Mylapore & there were many Wolves & Jackals too living there.

Some of the brahmins living there complained to the King asking him to kill the Jackals & Wolves as they found their cries disturbing their sleep. As always the King was facing lot of troubles from Chalukyas in Karnataka & other adversaries in Odisha. He was cautioned by one of his close Ministers NOT to kill them & destroy the mangrove swamp as they provided natural defense against marauders. That Minister had just married the woman he loved after brief courtship. But could not consummate as he was that busy offering assistance to the King. And the King with his Army including that Minister left to battle the chalukyas.

In his absence the brahmins violated Rajendra Chozhan's strict injunctions slaughtering all the Jackals , Wolves & setting the entire area on fire.
At once the marauders from Odisha came & massacred a lot of people there. The Minister's newly married Wife was being chased by them to be raped & abducted or killed. She drowned herself in a well & breathing her last thus thwarting rape & abduction / murder.

Much later the distraught King as told by Her in His dreams ( as Rajendra Chozhan was genuinely aggrieved & angry ) built a Shrine for Her.

It is a well known Shrine in Mylapore. Very unassuming but lot of women ( and men) come there to pray.

Certain Brahmins conducted themselves well. Many did not.
Svami.Omkarananda of Chidbhavananda Ashram ( Theni ) himself has said " It is brahmins alone who are the cause of their downfall particularly those from Thanjavur ( Tanjore)".

Mangroves destruction & hemamalini & self righteous outrage from certain commenters reminded me of this heartbreaking true story. Balakumaran has also written this "honour killing" was prevalent among brahmins too then. A rape victim in Brahmin community was coerced to kill herself by jumping into a well.

Jayakanthan ( passed away recently) wrote a novel on the plight of a rape victim in Brahmin community.

He wrote in the forward :- " When I showed my story to many of my acquaintances NONE of them was shocked ; instead said casually of course such things happen..why talk about it at all...why write a story.......Literature does not exist to entertain...titillate ...as time pass....those who refuse to understand LIFE cannot be expected to understand & appreciate good literature".

He wrote a sequel years later which was nothing but Monologue of the Victim (who turns to alcohol to drown her sorrow) written in stream of consciousness style.

ragimasalvad v rao

In Reply to Janakiraman Rajalakshmi 1 year ago

Good

Janakiraman Rajalakshmi

In Reply to ragimasalvad v rao 1 year ago

Thank you.

Janakiraman Rajalakshmi

In Reply to Sucheta Dalal 1 year ago

///Do do try and learn perspective and dont jump to conclusions -- that is far more casteist and proves the point!///


Thank you very much for writing this much needed reply. I wanted to but was hesitating as I am already facing lot of flak from worshippers of hemamalini.

Lord Venkateshwara

1 year ago

2007-08 Recession was a Created Recession well planned by Rothschilds

"Citigroup suffers nearly $10B billion loss - Jan. 15, 2008"

"Citi Reports Fourth Quarter Net Loss of $8.29 Billion, Loss ..."

"Citigroup Inc. (NYSE: C) today reported a net loss for the 2008 third quarter of $2.8

billion, or $0.60 per share"

"Citibank could collapse due to £13.3billion losses, warn financial experts"

"Citigroup Posts Staggering Loss, Cuts Dividend - Forbes"

"Citigroup Records a Loss and Plans 9,000 Layoffs Apr 18, 2008"

"Citigroup gets massive government bailout | Reuters"

"BBC NEWS | Business | Citigroup's $9.8bn sub-prime loss"

"Citi posts huge loss, splits up the company - NBC News "

" Citi's big split .... quarter of 2007; the losses abated, but then accelerated in

late 2008 ...............

2007-08 Recession was a Created Recession well planned by Rothschilds

It is pure non - sense that Raghuram Rajan has foreseen the 2008 recession, we saw it

before him, The recession was masterminded by Rothschilds and the Rest is History --

Rubbing it off on Indians in the form of Debt in 2007-2008......... Check Your

Citibank Statements During that Period !




Krishnan

1 year ago

Ms. Arundadhi is an overrated person and hence her arrogance. How come RBI and SEBI and FM , to which is servile, remain helpless., Witness her indifference to the plight of 7th Bi-partite pensioners of SBI and her willful disregard of the powers vested with the Bank by the SBI Act, by making uncalled for reference to FM to regulrise payment of the eligible pension ,instead of continuing to make ad hoc payment for over 15 years and going on appeal against the judgements of the various superior courts against favlourable judgments in favour the pensioners.
Pathetic.

Krishnan

1 year ago

Ms. Arundadhi is an overrated person and hence her arrogance. How come RBI and SEBI and FM , to which is servile, witness her indifference to the plight of 7th Bi-partite pensioners of SBI and her willful disregard of the powers vested with the Bank by the SBI Act, by making uncalled for reference to FM to regulrise payment of the eligible pension ,instead of continuing to make ad hoc payment for over 15 years and going on appeal against the judgements of the various superior courts against favlourable judgments in favour the pensioners.
Pathetic.

Akshay Kini

1 year ago

This is why I do my business in private banks as far as possible. I even keep my s/b account balance in PSU banks to a minimum. They should not enjoy with my money. Just look at the rosy CASA ratio psu banks have. They should have no need to charge for anything.

Raj K Swamy

1 year ago

It is unfortunate and highly objectionable that sucheta dalal compares PSUs to Brahmins, a caste which is at the receiving end . All other castes are bestowed with reservation in education and jobs and are the favoured ones like the PSUs. This article smacks of her caste bias and she needs to apologise to brahmins as a class and withdraw this article.

REPLY

SATISH MADHAV

In Reply to Raj K Swamy 1 year ago

There was absolutely no need for Ms.Dalal to drag Brahmins into the picture to make her point.Such statements -as expected-have found support in the comments section All that the Brahmin bashers achieve is only the displaying of their own inferiority complex.

Meenal Mamdani

In Reply to Raj K Swamy 1 year ago

Such a shame that you latch on to one statement in this well written article and that too the most innocuous one and demand an apology.

All that Ms Dalal said was that PSU banks are at the top of the hierarchy of banks just like the Brahmins are at the top of the hierarchy of castes. That is the Hindu tradition, not a figment of her imagination.

Raj K Swamy

In Reply to Meenal Mamdani 1 year ago

You miss the point- The PSUs may be on the top of the heirarchy here but not the brahmins in this country- IF a point is to be made about the privelaged status of PSU,s then state that simply . Why bring in caste? I surely have the right to raise an objection to such wanton and pointless comparison. As for as Hemamalini is concerned- she did what she did inspite of being a brahmin- and such acts are not representative of brahmins.

SATISH MADHAV

In Reply to Meenal Mamdani 1 year ago

It takes just a drop of poison to ruin a pot of milk.

Ganesh Johnson

1 year ago

And it seems the SBI chairperson Arundhati Bhattacharya is on the short-list for SEBI chairpersonship!
Need I say more?

Shankar Bharadhwaj

1 year ago

Very Nicely captured , I fully agree with you on the Issue of NPAs as the PSUs just don't bother even if you bring to their notice that there are diversion of funds and they inform the promoters that some one has found out their diversions to intimidate the people who want to inform the banks

Kamal Garg

1 year ago

Perfect analysis. It is a big nonsense that we all tax payers and citizens of this country pay through our nose for the misdeeds of our leaders (and mind it, it includes leaders of all clans and background - be it Congress of BJP - BJP is no better than Congress in managing economy of the country) and all PSUs including all PS banks will go on giving loans to all non-credible borrowers that turn into NPAs eventually.
No wonder, Morgan Stanley has given a price target of Rs. 115 for SBI share.
A Government in India has to reckon that the olden days of their ruthless game playing has to stop some day. Citizens are aware and awakened today.
Why SEBI cannot take action against a listed company. Only because, frankly speaking, SEBI Chief, at the end of the day, is a government appointee and has to fall in line with he government's diktats.
SEBI is a small regulator in terms of power and authorities.
Look at even none other than RBI. The central bank of the country. Even the Governor of RBI is not spared and he is harassed and coerced to the diktats of government. Look at famous statement of PC : "If we have to walk alone, we will walk alone" or cajoling and nudging by all sorts of government functionaries including Finance Secretaries/NITI Aayog chairman , etc. telling RBI Governor to reduce bank rates three months bank.
If India has to progress, this kind of interference and calling the regulators as their fiefdom has to stop. Then only regulators and competent regulators will work towards a better economic development and a transparent policy regime.

Unnikrishnan Nair B C

1 year ago

I partly agree with the views expressed in the article. While the author is right in questioning the wisdom of SBI in not allowing e-voting in the proposed special EGM, her criticism on the statement made by the Chairman of SBI regarding the blame for NPAs is quite unfounded. How can a Banker anticipate what will be the policy changes the government or RBI will bring in in the future. The proposals will be assessed based on the existing policies only, while any adverse change in policy shall be considered as a threat while doing the SWOT analysis. At the same time Banks have been at fault in dispensing credit to large corporates without insisting for the personal guarantee of the promoters behind the project, while the same is insisted for small ticket loans! And now we see Kingfisher Airlines being declared as willful defaulter and the man behind the project Vijay Mallya happily roaming around and celebrating his birthday in style!!! Had the Baks taken the personal guarantee of Mallya while granting the loan, all his assets could have been attached by now. (It is true that if the Banks want to, even now they can do it by approaching a court for attachment of all his properties, but I wonder why they are not doing so)

vnrao

1 year ago

E voting may not have any implication on the running of the company since the major shareholder is govt.Regarding working of the bank every bank including private bank like ICICI is also having huge NPA.All the banking institution work on lobby corruption only public sector come for critisim because they cannot meet the PRO of private

Hemlata Mohan

1 year ago

While the article is informative, it would have been nicer if a "caste" element ( Brahmin) was not brought into it. If you are talking about PSUs being untouchable, then this is not the nomenclature please!
And Ms Bhattacharya is not entirely wrong when she says that the responsibility for NPAs should not be only on the shoulders of banks-MrN Vaghul and Mr MG Bhide, just to name a few, were known to be squeaky clean people. And please do not talk about Pvt sector banks- if I have to write about their wrongdoings and how they wriggle out of a situation to the detriment of a customer, I'll have to write tomes!

REPLY

S.S.A.Zaidi

In Reply to Hemlata Mohan 1 year ago

I agree with Hemlata Mohan in regard to her observation to Private banks not being holier than PSBs.
Prvt sector banks do display high level of arrogance.
So far SUcheta 's referring SBI as Brahmin is concerned it not be taken as a derogatory comment--it simply means they are the oldest and eldest-so enttled to put forward their points of view authoritatively .This is what Ms sucheta ,i guess ,meant

Meenal Mamdani

1 year ago

This does not really address the thrust of the article but for whatever it is worth, I want to bring to your attention that the much praised private banks are not as customer friendly as they used to be.

I have received better customer friendly service from PSBs that the vaunted private banks like ICICI.

Both private and public banks are ultimately manned by humans who are subject to the same temptations and pressures.

We need to fix the blame for bad decisions more accurately through scrutiny of minutes of bank meetings and put individuals in prison for malfeasance. If the criminals can get away by just paying money which they have aplenty and not face months if not years in prison, the jamboree will continue.

SC raps Gujarat for not implementing food security law
New Delhi : The Supreme Court on Monday slammed the Gujarat government for not implementing the National Food Security Act, asking if it was not part of India or wanted to break away.
 
Taking exception to the Gujarat government's stand that it had not implemented the food security act since it had some issues with the law, an apex court bench of Justice Madan B. Lokur and Justice N.V. Ramana asked: "You have to tell us whether you believe in parliament of India or law passed by it. If not, then why?"
 
Asking if Gujarat was "unique", the court said its stand amounted to undermining the law. "The National Food Security Act extends to the whole of India. How can Gujarat say (how) it will be implemented?"
 
Saying that Gujarat's stand was "sad", the court asked: "What is parliament of India doing? What is the government doing?"
 
The bench said if the court was to accept Gujarat's stand, other states like Jharkhand, Madhya Pradesh, Odisha and Telangana etc too would say that they will not implement the said law because Gujarat was not doing so.
 
"Tomorrow, some other states will say they will not implement the Code of Criminal Procedure, Indian Penal Code or the Evidence Act as they have issues with the provisions of these laws," the court observed, pointing to the implications of the Gujarat government's stand.
 
The court's rap came during the hearing of a public interest litigation by a non-governmental organisation Swaraj Abhiyan seeking relief for people living in drought-affected states.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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