Citizens' Issues
Railways admits lapses in catering, basic amenities

Between April 2012 to October 2014, the Railways received 5,670 complaints from passengers about unhygienic conditions, cockroaches, non-functioning of lights, fans and other electrical equipment and catering services including substandard food

 

The Indian Railways on Monday admitted that passengers are facing lack of basic amenities in trains and there are also complaints of poor catering facilities in certain long distance trains.
 
In a written reply, Manoj Sinha, the Minister of State for Railway, said, a total number of 5,670 complaints were received by railways from passengers regarding unhygienic conditions, cockroaches, non-functioning of lights, fans and other electrical equipment and catering services including substandard food during April 2012-October 2014.
 
Penal action including imposition of fine and termination of contract is taken on case to case basis against defaulting contractors depending on gravity of complaints.
 
Besides, fine was imposed in 561 cases and warnings were issued in 623 cases to the caterers during the period.

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Half a Prescription by RBI?

As the banking regulator, will RBI be responsible and pro-active about NPAs instead of blaming the legal system?

 

Every public speech of Dr Raghuram Rajan, governor, Reserve Bank of India (RBI) creates a buzz. The 3rd Dr Verghese Kurien Memorial Lecture was no different. It was blunt, thoughtful and devoid of economic jargon. It lucidly explains the gigantic problem of bad loans and how “the sanctity of the debt contract has been continuously eroded in India in recent years, not by small borrowers but by large borrowers.” 

 

The governor spoke of how “too many large borrowers insist on the divine right to stay in control despite their unwillingness to put in new money.” He said, the promoter “threatens to run the enterprise into the ground unless the government, banks, and regulators make the concessions that are necessary to keep it alive. And if the enterprise regains health, the promoter retains all the upside.”
 
The Indian taxpayer pays the price for the mammoth loan write-off by banks, which added up to 1.27% of GDP at Rs161,018 crore in the past five years. This, said Dr Rajan, would have allowed “1.5 million of the poorest children to get a full university degree from the top private universities in the country, all expenses paid.”
 
The governor explained how structures such as debt recovery tribunals (DRTs) do not allow speedy recovery of loans, and the ‘draconian’ Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002, is only used successfully against helpless small borrowers. What is worse, draconian recovery legislation only acts as a disincentive to innovation. 
 
But the bad loan numbers are truly staggering. Recovery through the DRT route was just 13% in 2013-14 at Rs30,590 crore against the outstanding debt sought to be recovered of Rs 236,600 crore. Dr Rajan blames this sad state of affairs on the long delays in obtaining judgements and, often, incorrect exercise of jurisdiction by courts. The consequence, he points out, is that banks lend at higher rates, charging a ‘credit risk premium’ to compensate for the risk of default and non-payment. 
 
How does Dr Rajan think this situation would change? His solutions focus on three areas.
 
First, better capital structures, where lenders insist on promoters bringing in more ‘real equity upfront’ and not try to finance mega projects with ‘tiny slivers of equity’ that is borrowed from elsewhere and taken out as soon as the project gets going. Second, a joint lending forum which should prevent borrowers from playing one lender against another. And, third, an improvement in the debt recovery system, including a new bankruptcy law, and provision for structures such as professional turn-around agents. 
 
Why does this masterly assessment of the situation seem to air-brush the real story of bad loans? In fact, Dr Rajan sounds like an outsider standing away from the entire mess of bad loans, when, in fact, as the banking regulator, the buck stops at RBI’s door. 
 
Let’s focus on a few issues in Dr Rajan’s speech. He says, “I have met numerous parliamentarians who are outraged at the current state of affairs.” In fact, the most outrageous cases of reckless lending, over-generous debt-restructuring and mammoth bad loans have happened precisely because bankers are following instructions from politicians, especially when they are also businessmen. 
 
Consider the headline grabbing bad loans of the past two years. Dr Vijay Mallya, whose Kingfisher Airlines alone owes over Rs7,000 crore to banks, is the most prominent. 
 
Mr Mallya, a member of parliament (MP), has used this fact very effectively to build up massive debt. 
 
The Airline stopped flying in 2012; it has not paid its employees and defaulted on various tax payments as well. But it was only on 1 December 2014 that the ministry of corporate affairs (MCA) finally rejected Mr Mallya’s reappointment as managing director, reportedly under pressure from his bankers. 
 
On the very same day, he had to resign from the board of Mangalore Chemicals & Fertilisers after bankers threatened to stop lending. Almost at the same time, shareholders of United Spirit Limited (USL) shot down most of the cosy deals with Mr Mallya’s other companies at a general body meeting. His continuance as chairman is also subject to the absence of defaults by UB Holdings.
 
Clearly, bankers’ inability to initiate tough recovery measures was due to political pressure and collusion rather than systemic issues. While political will is an important factor that was missing over the past decade, a little help from RBI in nudging the MCA to force a change in management, or find Satyam-like solutions, could have saved many companies and salvaged their loans.
 
As we go to print, SpiceJet has been cancelling over 50 flights a day, causing extraordinary hardship to people across India. Do we see any signs of urgency on the part of banks to assess the situation, force a change management or make the existing promoters bring in funds before the company goes bankrupt? The politician brothers—Dayanidhi and Kalanidhi Maran—were, indeed, powerful in United Progressive Alliance (UPA) government, but are they in a position to make any threats today? 
 
Then there was the Lanco group of Hyderabad which rapidly grew into a power, construction and engineering conglomerate through generous loans by a consortium of banks. Its chairman, Lagdapati Rajagopal, is a Congress MP famous for using pepper spray on fellow parliamentarians, who he repeatedly described as a ‘mob’. Even after Lanco was in a deep financial mess, banks gave it another Rs9,000 crore as part of corporate debt restructuring (CDR) just before the 2014 general elections. 
 
Lanco is only one of many notorious Hyderabad-based companies that have received special benevolence from nationalised banks. For instance, T Venkattrami Reddy of Deccan Chronicle is allowed to exercise his ‘divine right to stay in control’, despite serious allegations of fraud and criminal conspiracy to cheat investors. Eleven banks have lent over Rs4,000 crore to the group. In 2012, when the charges of fraud surfaced, the company put on a brave front; but, by 2014, many of its bankers had classified the loans as non-performing and may have to make big write-offs.
 
Didn’t the Reddy’s opulent lifestyle and clear diversion of funds to a cricket team (Deccan Chargers) and luxury aviation enterprise raise the slightest alarm among bankers? Probably not; because, again, the Reddys were politically powerful nephews of high-profile Congress MP T Subbarami Reddy. 
 
This brings us to Dr Rajan’s point about the need for better capital structures and how promoters finance projects with slivers of equity borrowed from elsewhere. Huge padding of project costs and brazen diversion of funds through collusion of bankers has been the basis of growth for many first-generation conglomerates operating in steel, power and infrastructure. 
 
In fact, burgeoning bad loans and frequent debt restructuring is due to such collusion rather than choked up DRTs. Pertinently, only irrecoverable cases land up at the DRT. Government banks have no incentive to hasten hearings and, as long as they can blame the legal system for delay, they have nothing to fear either. 
 
Often, promoters collude with bankers to strip assets so that there is nothing to recover after the case winds its way through the DRT. As Dr Rajan correctly points out, the only victims of the draconian DRTs and SARFAESI Act are small businesses.  
 
The governor’s final point was that a wilful or non-cooperative defaulter must not be lionised as a captain of industry, but justly chastised as a freeloader on the hardworking people of this country. One has to look at Vijay Mallya’s timeline on twitter to know that the public does not lionise defaulters at all. 
 
But, yes, our chambers of commerce do, because the big borrowers negotiate a place on important committees to improve access to politicians. Here, too, a nudge or a hint by RBI and the bankers will work wonders. In fact, a little more responsibility, speed and proactiveness by RBI in its role as banking regulator will make a big difference. Will it ever happen?
 

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COMMENTS

Mahesh Khanna

2 years ago

"In fact, a little more responsibility, speed and proactiveness by RBI in its role as banking regulator will make a big difference. Will it ever happen?"

A dream of Madam Sucheta Dalal would never come true

Challa Hanumanth Rao

2 years ago

I thought Dr Rajan's suggestions in his speech is the only solution to the vexed problem of NPAs. But Mrs Suchetha dalal's indepth analysis brings out the real and root cause of the malady. It is very true. But how Dr Rajan could not notice this fraudulent game played by politicians since long.
Request Mrs Dalal to organise a Seminar/Event involving all the social ,NGOs,trade Unions ,Anna Hazare ,kejriwal and left political parties etc to bring pressure on the Govt to act tough on these politically motivated business houses which are shaking the foundations of banking system.

Challa Hanumanth Rao

REPLY

Mahesh Khanna

In Reply to Challa Hanumanth Rao 2 years ago

It is not that Dr. Rajan could not notice this fraudulent game, he is helpless possibly and secondly failed to introspect the failures of the regulatory authority itself. while Pointing four fingers on the others he forgot that one finger is pointing at the regulatory authorities failures.

Dhoot Usha

In Reply to Challa Hanumanth Rao 2 years ago

It seems Dr. Rajan is helpless even if he notices fradulent game . Forget about the politicians. He can not put his house in order. When the undersigned complained against the one of the officer, the same officer was asked to examine the case and deliver judgement. When pointed out to the Governor he kept mum on my letter.

Abhijit Gosavi

In Reply to Dhoot Usha 2 years ago

That can't be a good sign; just read something similar on twitter. Have studied his work on risk, but implementation is a whole different ball game.

Abhijit Gosavi

In Reply to Abhijit Gosavi 2 years ago

My comment got uploaded partly. Appointing incompetent people (for political favors as this article points out) is usually a major risk factor for failure.

Ravindra

2 years ago

What about the blatant corruption where Bank Officials giving loans in return for BRIBE??

REPLY

Mahesh Khanna

In Reply to Ravindra 2 years ago

What about RBI refusing to divulge the name of big defaulters though had been directed by the CIC in a matter raised by RTI activist
Subhash Agrawal?

B. Yerram Raju

In Reply to Ravindra 2 years ago

It would be great service if you can catch them with evidence lest it will be ending up as gossip.

Dayananda Kamath k

2 years ago

who is responsible for the situation. it is rbi itself. the concept of npa itself has been misunderstood by rbi. the purpose of npa is to monitor the acount closely to revive it.but not to finish it.
earlier banks were charging interest quarterly, after npa they started charging monthly which actually increased the interest burden due to monthly compounding. further it reduced the time limit available for taking constructive steps. instead of genuine npa being monitored it has been used to benefit powers that be to loot the country in the name of restructuring. it is not only the responsibility of the regulator to put in place a system, but also to monitor it effectively. the restructuring, selling to arc bifr etc are the scams to be probed.

REPLY

Mahesh Khanna

In Reply to Dayananda Kamath k 2 years ago

I totally agree with you, the root cause is RBI which is responsible for the said situation. They may not accept the bitter truth but it is always that the truth triumphs and the evil fails. If they show their helplessness, then there is no need for an regulatory. They are just pretending to be innocent. authority.

Mahesh S Bhatt

2 years ago

American Economy went bonkers India is following heavily American way of legally illegal things but Truth has its own way to come out ugly forms.

This is Vedic principle of Truth which is Human's natural quality & nature hates true.

So be prepared for largest man-made misery.Sooner it unfolds sooner the corrections.

We are living in age of State Sponsored Common sense.Pray we exercise common sense.

Rgds Mahesh

Yerram Raju Behara

2 years ago

Rajan made bold to lay things bare while the solutions that lie at his doorstep are still to be explored. Why not list up all the directors on the Boards of all these corporate defaulters and disqualify them for being on any other Board for the next two years and take review thereafter on them for further due diligence? Second, that list should also include the official or nominee directors if they did not raise their voice in any of the Board meetings that examined the proposals for sanction, or while discussing the NPAs or while approving the CDR. If the Government supports, make the list of Directors even public.
Reform the CDR mechanism and make it more friendly for the MSMEs. If the Banks had obtained collaterals from the MSMEs where they are not supposed to under the existing regulations (CGTMSE provides for collateral free lending up to Rs.1crore to MSEs), they should not have right to proceed against the borrowers. If they are willful defaulters then the banks should file money decrees and attach their properties for realization, taking all the consequences for such declaration on them.

Abhijit Gosavi

2 years ago

Very good analysis. And I see the main point about how political favors ruin eveything. I believe Dr. Rajan had said similar things about the U.S. economy, but nobody had paid attention to him when there was still time.

He understands risks very well, and it is truly a stroke of luck that India has him running their RBI. What he said about a politician was probably a minority view (amongst the political class) that he endorses; after all he needs their support to get anything done. He not only has a deep understanding of finance and economics, but is also a pragmatist.

If I were to grade him, he would get an A+; the + because of the conditions in which he operates. Of course, this is just my opinion.

Sanjeev B

2 years ago

It's now or never - Modi and Rajan can do a lot for India together. Rajan has the answers, Modi has the mandate to tighten the screws.

First close the holes and make it clear that the party is over. Then put pressure on bank managers to recover debts or quit.

Change the accounting norms and state bank balance sheets honestly, so that there is no scope for padding.

Publish the true state of every bank's finances. Just as the law takes its course, let the stock market also take its course.

The best way to tackle this is to put pressure on bankers to do their job, or face the music. Sack a few, the others will fall in line.

MG Warrier

2 years ago

I am optimistic. Things are changing. 'SAVING CREDIT FROM UNSCRUPULOUS BORROWERS' speech by Dr Rajan on November 25 is a good beginning. Dr Rajan is able to send out right messages loudly and clearly. Keep putting pressure on Modi and Rajan. But Iwould avoid negative thinking.

SuchindranathAiyerS

2 years ago

If Mr. Raghuram Rajan was not a new kid on the block, he would be aware that Non Performing Assets are an essential concomitant of India's National Policy and a creation of Bharath Sarkar ki Sampathi. He would also know that his latifundia has an Audit department which has even less gumption to function than India's Constitutional CAG. NPAs are a National conspiracy like the 9th Schedule to the Constitution, inflation, corruption and reservations.

Vaibhav Dhoka

2 years ago

Ordinary bank customer is end looser as he has to compensate such huge NPAs as he he has to bear the brunt as increased service charges,The recent limitation of ATM usage is best example.In fact banks are using unfair trade practice to recover charges from deposits kept with them.

REPLY

vswami

In Reply to Vaibhav Dhoka 2 years ago

Mr Vaibhav Dhoka
I am sorry, you have touched only the proverbial ‘tip of the iceberg’.
The 'unfair trade practice', going by past experience,and having in mind the increasingly reported irregularities, certainly could not just be the only one you refer. Should you or anyone else who is/are supposed to be really concerned,- of all, the RBI as the Regulator for the sector- ever cared to scout around and probe into sincerely, many and much more serious of the kind would have come to surface long ago. So much so, the RBI could have, as expected of, taken effective remedial measures, on a timely basis.
Those are essentially of the kind largely impacting and badly impairing even the basic rights of account holders. To hint at, one such instance given publicity in the media may be looked up @ Bank pulled up for ‘deficient documentation’ (Businesslike), As commented/opined there under, the area of grievance complained of , in one’s conviction, is something coming well within the control of the RBI. Subject to inquiry, there is no knowing whether the RBI has since taken any remedial steps to put an end once for all to such misdemeanors, as commonly known to being indulged in, by banks, particularly PSBs.

Instances of such or similar “deficient documentation”,more so in material respects, not only with respect to ‘loans’ given by banks (as in the reported case) but also FDs and other term/time deposits accepted by banks from the public might not be difficult to locate /identify; provided , of course, the deposit account holders are intelligent /shrewd enough, so as to care and diligently go through the contents of the most important document of all, being the Application for Account Opening. For, that is the document in which the applicable “terms and conditions” are, -rather expected to be truly, -set out, clearly in simple and plain words , and unambiguously . Any loan taker or depositor is, more often than not, for varying reasons and attendant circumstances, accustomed to sign even such vital documents, on the dotted lines, primarily because of the utmost trust and faith placed on the bank; more so, under the honest belief /taking for granted that the bank, known for its reputation/popularity, would not have failed but taken the utmost care and caution, in order to ensure that the terms and conditions are strictly in accordance with the governing Banking Rules and Regulations, the directives issued by RBI, and in force, from to time, so on.

May be contd.

Deepak R Khemani

2 years ago

Some things will NEVER change in India I guess, Banks will get Re capitalised, stock markets will take the prices of these banks higher, weaker banks will get merged into stronger banks and everything will be conveniently forgotten.

Sharad Jain

2 years ago

This is vintage stuff Sucheta, hope Mr Modi reads it
and tries to staunch the wanton loot of the honest tax payer's money.

Sunil

2 years ago

Indeed !!! Will it ever happen? That is the million rupee question. Will the RBI wake up to its responsibility?

ICICI Bank caps free transactions at five for own ATMs, three for others

After exceeding the free transaction limits, ICICI Bank customers will have to pay Rs20 per financial transaction excluding service tax and Rs8.50 for every non-financial transaction

 

ICICI Bank Ltd, the country’s largest private sector lender, has announced a hike in its automated teller machines (ATMs) charges for savings account holders from 1st January. Under the new method, the number of free transactions in a month is fixed at five using own ATMs, while it has been capped at three for other banks’ machines.
 
Customers can enjoy only five free transactions, including financial and non-financial, at the bank’s own ATMs, it said in a post on its website.
 
After exceeding the free transaction limits, customers will have to pay Rs20 per financial transaction excluding service tax and Rs8.50 for every non-financial transaction, it said.
 
For transactions at non-ICICI Bank ATMs, the number of free financial and non-financial transactions have been reduced to three per month at six metros of Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad, after which the customer will have to pay Rs20 for a financial transaction and Rs8.50 per non-financial transaction.
 
In case of usage in non-metro areas, a customer can enjoy five free transactions per month at non-ICICI Bank ATMs, after which the same charges apply, it said.
 
The issue of ATM usage has been a very contentious one due to the inter-connect charges a bank has to pay to the other. Additionally, the operating costs have also gone up, following a spate of incidents at the ATMs like the robbery at Bengaluru last year, which started the debate on transaction charges.
 
After consultations, the Reserve Bank of India (RBI) last month started a system under which it allowed banks to charge from the fourth transaction onwards at other banks’ ATMs in metros, and gave the liberty to banks to charge customers for the sixth transaction onwards at own machines.
 
“The ATM transaction is free to you but not free to the bank. It costs the bank Rs75 to Rs100 for those five transactions. The bank has to collect that amount from somewhere and it has to be from customers. But there are two distortions that it creates. First, not everybody is doing the same amount of transactions and (also) are we subsidising using of cash by freeing up ATMs?” RBI Governor Raghuram Rajan had said, in defence of the new move.
 
Many banks have already announced reviews in their ATM charges following the announcement.

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