Stocks
Nifty, Sensex struggling to head higher – Tuesday closing report
Nifty will remain in an uptrend as long as it is above 8,150
 
We had mentioned in Monday’s closing report that Nifty, Sensex uptrend may pause and that while bulls remain in control, Nifty is likely to turn sluggish at the current levels. The major indices in the Indian stock markets were moving sideways for much of the day’s trading on Tuesday, and finally closed with marginal losses. The trends in the indices through the day are given in the table below:
 
 
Caution over quarterly results coupled with profit bookings subdued Indian equity markets on Tuesday and led to a marginal fall in the major indices in the stockmarkets. Initially, both the Sensex and the Nifty opened flat in line with their Asian peers.
 
Further denting sentiments included Reserve Bank of India (RBI) Governor Raghuram Rajan's comments made on Monday cautioning the International Monetary Fund (IMF) to stop some countries from initiating policies that might negatively impact global economy.
 
The lacklustre Asian markets also negatively impacted the Indian indices. In Asian markets, Japan's Nikkei was up 0.42%, while Hong Kong's Hang Sang slipped by 0.37%. However, China's Shanghai Composite index increased by 1.11%.
 
Negative European markets on the back of diminishing chances of extension of the European Central Bank's (ECB) stimulus eroded investors' confidence.
 
Yallen, who is expected to speak later in the day, is expected to give cues on whether or not the US Fed will raise interest rates its October meeting. The US Fed will hold its Federal Open Market Committee (FOMC) meet on October 27-28. The FOMC assumes significance as higher interest rates in the US are expected to lead away FPIs (Foreign Portfolio Investors) from emerging markets such as India.
 
The Indian rupee too lost strength in the day's trade. It was down 25 paisa at 65.06 to a US dollar from its previous close of 64.81 to a greenback. The domestic institutional investors (DIIs) were net sellers in the day's trade, whereas the foreign institutional investors (FIIs) were net buyers. According to data with stock exchanges, the DIIs sold stocks worth Rs.354.96 crore and the FIIs picked up stocks worth Rs.523.69 crore on Tuesday.
 
Sector-wise, S&P BSE metal index fell by 136.05 points, oil and gas index was down by 67.31 points and healthcare index declined 60.49 points.  The S&P BSE information technology (IT) index rose by 110.98 points, automobile index rose by 55.31 points and consumer durables index gained by 54.40 points.
 
The top gainers and the top losers of the indices are given in the table below:
 
The closing values of the major Asian indices are given in the table below:
 

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Dhanlaxmi Bank Officers to resort to agitations again

Alleging harassment and seeking protection from RBI for whistle blowers, the officers from Dhanlaxmi Bank, supported by AIBOC decided to again resort to agitations against the unjustified termination of PV Mohanan, the general secretary of DBOO

 

After observing a strike for almost 33 days, the officers in Dhanlaxmi Bank Ltd said they will again resort to agitations against the unjustifiable termination of PV Mohanan, the General Secretary of Dhanlaxmi Bank Officers' Organisation (DBOO).
 
Service of Mohanan, who was working as Senior Manager in the Bank's Recovery Department at Thrissur, was terminated on 11 June 2015 citing 'loss of confidence'.
 
The National Executive Committee of All India Bank Officers Confederation (AIBOC), after taking a stock of the situation in a recent meeting, has decided to again commence agitation to reinstate Mohanan and restore trade union's rights in Dhanlaxmi Bank. The meeting was attended by DT Franco Rajendra Dev, senior vice president of AIBOC, V Chidambarakumar, president of All India Private Sector Officers Federation, Paul Mundadan, secretary of All India Private Sector Officers Federation and Abraham Shaji John, Secretary for Kerala of AIBOC.
 
"By dismissing the General Secretary, the Management wants to silence the whistle blowers in the Bank and also find an alibi for their mismanagement, as the DBOO is on an indefinite strike," the DBOO had said in a statement.
 
Our emails sent to the top management of Dhanlaxmi Bank remained unanswered till writing this article. We will incorporate their answers as and when we receive it.
 
According to the Officers' Organisation, it is on the path of agitation for the last 10 months as the Bank Management had chosen a victimization route against the association, for pursuing genuine trade union activities. "The difference of opinion started in early 2014 when DBOO alerted the Bank's management on a major fraud (through the Bank's whistle blower policy) that was being perpetrated through one of the Bank's Mumbai Branches," the Organisation said.
 
 
The scam, worth about Rs1,500 crore, involving several other banks is now being probed by the Economic Offence Wing (EOW) of Mumbai Police. "There are indications about the involvement of higher level executives of Dhanlaxmi Bank also in the fraud, but as of now one of our junior level officer, a member of DBOO, who just obeyed the instructions from the top management, has been arrested and is in jail for the last two months. One Director of the Bank tendered his resignation in view of the involvement in the fraud," DBOO had said.
 
In two letters sent to the Reserve Bank of India (RBI), the union had alleged that despite having clear evidence of the active involvement of top officials of the Bank in the high value fraud in Mumbai, perpetrated by Showman group, no action has been initiated against either the Managing Director or the Chief General Manager of the Bank. It said, "This is a mystery to all. Only one Director Sreekanth Reddy resigned. A Scale I officer, who passed the entry in the computer system has been booked and is in jail since past two months. We fear that with the passage of time, evidenced will be destroyed and facts will be distorted. This is our worry and the real culprits will go scot-free."
 
Moneylife was the first one to report the AIBOC allegations that the bank has manipulated accounts and provisioning, has a mismatch in asset-liability resources, maintains poor capital adequacy ratio and has huge dependence on call money borrowing. It has also accused the bank for ignoring social banking and financial inclusion. (Read: The stink coming from Dhanlaxmi Bank: AIBOC raises serious allegations)
 
According to DBOO the trend continues. For FY2014-15, Dhanlaxmi Bank reported a net loss of Rs241 crore compared with Rs251.9 crore same period a year ago. "This is in contrast to the first three quarters of profit that the Bank has been showing since 1 April 2014. The sudden plunging into a heavy loss itself is an indication of the accounting adjustments that the Bank has been practicing for long. The very purpose of publishing quarterly results is to ensure transparency of the Bank's working to the public at large. But by projecting a rosy picture for three quarters and then showing negative results only at the end of the year, the Bank is once again proving the accounting adjustments it has been doing to cheat depositors, employees and other stake holders," the Organisation said in its letter to the RBI.
 
Requesting intervention by the central bank, the DBOO said, "As the scheme of protected disclosure or whistle blowers scheme has the sanctity of Regulator's directive, we strongly feel that it is also the duty of the RBI to give protection to the whistle blowers. This, however, is not happening in Dhanlaxmi Bank. The officers are always at the receiving end whenever a whistle blowing is done. So we appeal to the RBI to kindly intervene and advise the management suitably".
 
Last year in August, the EOW unearthed a largescale banking fraud worth about Rs1,000 crore related with fixed deposits (FDs) in several banks. According to reports, banks involved in this large scale FD fraud include, Dena Bank, UCO Bank, Syndicate Bank, Bank of Baroda, Vijaya Bank, Dhanlaxmi Bank, Bank of India and Indian Overseas Bank among others. Among the institutions who were victims of the fraud are the Mumbai Metropolitan Regional Development Authority (MMRDA) and South Indian Education Society (SIES) Trust.

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COMMENTS

TIHARwale

2 years ago

what is preventing AIBOC in making public the link related to dismissal in other Banks so that RBI is forced to protect the whistle blower and at the same time corrupt are dismissed

Will mergers and acquisitions improve Indian Banking?
Do we need global size banks or Indian banks that meet the growing needs of economy? Is M&A an answer for improving health of our financial system or will it make systemically important banks a greater strain for the regulator than now?
 
Banking Sector Reforms Committee in 1998 suggested consolidation of banks –the State Bank of India (SBI) and its Associates into a big state-owned bank and five or six such big banks through consolidation of other public sector banks (PSBs), mergers of private banks and even financial institutions (FIs) with non-banking financial companies (NBFCs). There were noises of consolidation in the United Progressive Alliance (UPA)-1 government too. And now, the Working Group on Mergers and Acquisitions set up by the Ministry of Finance again calls for a similar action. The major issues relating to capital, assets and human resources need to be looked at from the points of view of growth, financial stability and global experiences. Recently, Arundhati Bhattacharya, Chairman of SBI, strongly fielded the arguments for large scale consolidation. Is the Indian financial system ripe for the call?
 
Since 1969 till date, there has been as many as 34 mergers and amalgamations in banking and finance sector. There were at least 25 cases where private sector banks merged with the PSBs and some of them were induced mergers while several others were voluntary driven mostly by the weak financials of the banks that merged. Post-1999, however, even healthy banks were merged driven by the business and commercial considerations. Post reforms private sector has seen giant size banks taking shape in the private sector. 
 
Post recession global financial architecture required that the Reserve Bank of India (RBI) identify the systemically important banks – the SBI and ICICI Bank. However, emerging developments and the changes that occurred during the last two decades with digital banking making deep inroads, demand a different alchemy of structural transformation in Indian banking.
 
Capital is the Achilles heel. GoI would be hard put to provide the BASEL III capital requirement through measly budgetary releases. It would do well to restrict its shareholding to just around 51% and this would require strong argument on enhancing the efficiency of the PSBs, more autonomy and transparency in its ownership versus controlling roles.
 
The diversity of Indian Banking system – PSBs, private sector – old and new, regional rural banks (RRBs), local area banks (LABs), rural cooperative banks, urban cooperative banks (UCBs), Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD) and Micro Units Development and Refinance Agency (MUDRA), the proposed Payment Banks, the small savings banks is a challenge for reforms. We have the outliers – the microfinance institutions (MFIs) and the NBFCs.  
 
Financial inclusion demands the proximity of the banking system to the vast semi and illiterate customers in rural areas. Several experiments like the business correspondents, business facilitators, primary agricultural cooperative societies, regional rural banks, local area banks have not made a big dent in the most deserving inclusive sphere. Even Jan Dhan has thrown up big numbers and not big services in this direction. The small private banks are still showing up their validated presence closer to many a customer that the big banks like the ICICI or SBI have distanced. 
 
The Financial Stability Report (FSR) of the RBI for June 2015 holds that the weakness in asset quality and profitability remains high compared to the period up to September 2014. “Stress tests on sectoral credit have revealed that the shocks to infrastructure sector, mainly the power and transport sub-sectors, would significantly impact the system,” it says. This stressed portfolio is handled by the large number of big and medium sized PSBs, now sought to be consolidated by the SBI chief.
 
Need exists but the move requires lot of cleansing the operating environment. Most Banks in India, save exceptions, still view risk management as a scrupulous compliance function rather than as a business tool. Boards of the banks do not devote enough attention on measuring the risks of new products introduced by the banks. 
 
Human resources pose much larger issues. In several PSBs, due to stoppage of recruitment for nearly 20 years and with least willingness for lateral infusion of talent at middle and higher levels, there are going to be several vacant chairs in senior and top management positions. Several banks continue to outsource the retired executives for recovery of NPAs, marketing new products and services and clientele advisory services. 
 
If the banks that would like to merge have the financial muscle, the human resources (HR) would not be on even keel. The distant experience of either new Bank of India merger with the Punjab National Bank (PNB) or the forced merger of Global Trust Bank Ltd with the Oriental Bank of Commerce (OBC) posed HR issues that took decade and odd to resolve. For instance, even the Associate banks of SBI like the State Bank of Hyderabad (SBH) and State Bank of Mysore (SBM), and State Bank of Travancore (SBT) would prefer to be outside the hegemony of the SBI. The staff associations in these Associate banks have made it clear over and over again that they would not agree for any merger with the SBI. As mentioned in the Hindu Business Line editorial of 25 April 2015, mergers in Indian banking have been bail out exercise for weak banks or in some cases failed banks. 
 
The government could start the process of amalgamation of State Bank with the remaining subsidiaries to increase the size of the balance sheet by holding a constructive dialogue with the unions and officers’ associations. 
 
However, the eternal question remains: do we need global size banks or Indian banks that meet the growing needs of the Indian economy? Can they provide depositors their due place? Will mergers be an answer for improving the health of the financial system or will give rise to more systemically important banks proving greater strain for the regulator than now? These questions beg answers from the RBI and GoI more than others.
 
(Dr Yerram Raju Behara is a former senior executive of SBI and an economist and risk management specialist. The views expressed in the article are his personal.)

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COMMENTS

Aseem

1 year ago

Useful read sir. My sense is while consolidation could alleaviate the capital challenge, but unless other measures are taken simultaneously (improving corporate governance for PSU entities, creating a better employee selection and performance-reward systems) and setting stringent operating efficiency and profitability targets), we would be only resolving the symptom and not the root cause.

Aseem

1 year ago

Useful read sir. My sense is while consolidation could alleaviate the capital challenge, but unless other measures are taken simultaneously (improving corporate governance for PSU entities, creating a better employee selection and performance-reward systems) and setting stringent operating efficiency and profitability targets), we would be only resolving the symptom and not the root cause.

Suketu Shah

2 years ago

NOthing wl help unless you have the right leader at the top in the finance Ministry--and fast.

Parimal Shah

2 years ago

Let us not have 'too big to fail' kind of institutions - avoid the mistakes made by uncle Sam and others that followed him.

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