Money & Banking
SBI Chief Tries to Shift the Blame on NPAs
Blames lax regulations for high NPAs when the real cause is widespread corruption in public sector banks
 
The State Bank of India (SBI) chairperson Arundhati Bhattacharya, in an interview with Financial Times, has called for shake up in the regulatory system, as if SBI and its chairman is an outside to the same system.
 
In the interview, the SBI chief admitted that rates of bad and restructured assets will keep rising for “at least a couple more quarters”, despite having already hit roughly 10% of loans. 
 
But remarkably for the first time for a chairman of a government-owned bank, she has argued that India needs tougher rules for defaulters, as well as “a proper bankruptcy law to help get orderly resolution of [bad] assets”. “What we need is a little more teeth,” she was quoted while calling for firmer regulations to target indebted tycoons. 
 
There are three things to note about this new, sudden demand for teeth. 
 
1. No chairman of state-run lender has ever raised his or her voice about poor regulations that is failing to curb the ever-rising non-performing assets (NPAs).
 
2. SBI and other banks have never targeted defaulting corporate borrowers with determination to recover monies. Indian borrowers have always felt safe borrowing from the public sector banks knowing fully well that chairmen of these banks have no accountability. 
 
3. In fact, successive bank chairperson have passed the buck to the next person and retired with full benefits, even as defaults continued to hit the government-owned banks at every economic downturn.
 
4. The demand for “more teeth” is coming from the State Bank of India but not private sector banks because these banks have negligible bad debts.
 
5. This merely proves that it is not the recovery laws but lax credit appraisal and totally compromised top management is responsible for abnormally high bad debts in government banks.
 
Indeed, the same corrupt nexus between public sector banks and it's defaulting borrowers was responsible for band loans reaching 13% of advances in 2001-2002. In response, the government had created Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002 designed to help in the recoveries of bad loans. One of the key provisions of the Act is for banks to be able to auction the assets of defaulting borrowers. This law was supposed to wholly aid banks. 
 
Unfortunately, if the bank officials are corrupt and have lent money without adequate collateral, what auctions will they do? This is why spectacular defaults such as Deccan Chronicle and Kingfisher Airlines have led to no action against defaulters, despite the SARFAESI Act. In addition, SBI has been the biggest lender to Kingfisher. Have you heard of any action against any SBI official, including previous chairman, for what is obviously gross negligence in assessing Kingfisher’s creditworthiness and for not ensuring that the bank’s interests are covered?
 
In May, the All India Bank Employees' Association (AIBEA), while revealing wilful defaults worth Rs70,300 crore in 400 loan accounts in public sector banks (PSBs), has demanded a detailed probe in to the loan sanctioning and loans turning into bad assets. 
 
This is bad lending of epidemic proportions. If banks were not confident of the laws that would land them in this huge soup of bad loans, whom did they point this out to and why did they lend? No, these bad loans have only one root: corruption, something that Ms Bhattacharya does not want to talk about.
 
According to the bank employee's union, over the past seven years, there were fresh bad loans worth Rs4.95 lakh crore only in government banks, while during the same period, these lenders wrote off bad debts worth Rs1.4 lakh crore. Gross non-performing assets (NPAs) and bad loans in the PSBs have increased to Rs1.64 lakh crore as on 31 March 2013 from Rs39,000 crore as on 31 March 2008.
 
While the unions were demanding stern action against bank defaulters, not a single bank chairman supported it. Moneylife had asked the SBI chief three questions based on her FT interview. The questions were, did not SBI know that the laws were weak; did banks ever tell the RBI or the Finance Ministry about the problems and is SBI saying that the RBI has failed to act like responsible regulator?
 
Her office replied: "(the) Chairman in her interview had merely emphasized the need for tougher resolution mechanism to put a check on wilful defaulters. Additionally, she also said banks should work in tandem and more closely in consortiums, while lending only to projects that have government regulatory clearances in hand." It also said, "...to draw a link between the 3 questions that you have posed and the relevant interview is far-fetched."
 
The bank employee unions have been demanding fix responsibility on banks’ top brass for the loans that have turned bad, allow banks to share information on NPAs and wilful defaulters under the Right to Information (RTI) Act, and declare wilful loan default as a criminal offence. 
 

The fact is despite stringent credit appraisal process and committees to sanction loans, borrowers have siphoned off money from the banking system in connivance with bankers. Once this reaches large proportions that affect the functioning of the banks, the ministry of finance quietly steps in and washes the sins of the banks by recapitalizing them, even as chairman after chairman go scot free.

 

There is a reason for this perpetual lack of accountability of senior bank officials. Some chairmen are handpicked by ministry and finance minister for their ability to be pliant and sanction dirty loans. The Reserve Bank merely rubber-stamps this selection process. Who will go after the chairman when the MoF is involved and the RBI is hand-off? This is the root of bad loans in India, not lax regulations that Ms Bhattacharya tries to blame.

 

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COMMENTS

Yerram Raju Behara

2 years ago

Strange really is the demand for stringent regulations to curb the menace of growing NPAs. In fact, both the representatives of the RBI and GoI (Finance Ministry) sit on the public sector Banks' Boards. Most proposals that have now touched the gates of NPAs are sanctioned by the Board and NPAs are reviewed at quarterly meetings. What are these nominated Directors doing on the Board? There should be accountability for dereliction of duty of these nominated directors if they have not opened their mouths except for taking the snacks and tea or fatty lunches at the Board meetings. It is high time that the regulatory arbitrage is curbed. Regulations are clear. Neither the Bank Chairmen nor the Directors cared for remedying the situation except crying in public over what the four fingers point out against them.

Sunil Pratap

2 years ago

It is really no Corporate accountability at it's worst in all the PSU Banks. They need tougher actions internally to deal with NPA's.

Sunil Pratap

2 years ago

It is really no Corporate accountability at it's worst in all the PSU Banks. They need tougher actions internally to deal with NPA's.

Sunil Pratap

2 years ago

It is really no Corporate accountability at it's worst in all the PSU Banks. They need tougher actions internally to deal with NPA's.

TIHARwale

2 years ago

By the month end Public Sector Banks are expected to come out with half yearly results. Information is that all PSBs are going to report double digit MPA figures. All big ticket loans above Rs 3 Crores need to inspected physically by Controlling office and every month Zonal Offices have Credit Monitoring Review Dept, so inspite of all this all tHese years if NPA was not much because Branch Heads used to tamper with reporting figures with full backing of Controlling offices. Ever since Raghuram Rajan became head RBI is seeking system generated information so all the rot is coming out. So today SBI Chief has come out in open. Other PSB heads also will come out shortly because they are also holding huge NPAs. Rather thanks to corrupt Management and Union the ordinary staff is waiting for a wage revision for now almost 2 years thanks to massive NPAs they may not get even 2% per annum raise thro wage revision. Officers cannot escape their ignorance of credit monitoring or corrupt practices. As regards to Clerical staff less said better who are lambs who follow Union leaders because Unions encourage rowdyism and Branch heads are helpless and are forced to buy industrial peace by allowing credit facilities to persons with whom they have unhealthy dealings.

SuchindranathAiyerS

2 years ago

The truth is the first casualty of the Indian Republic i.e. the Quota-Corruption Raj run by the Neta-Babu-Cop-Milard-Crony Kleptocracy!

Ananthanrayanan Ranganathan

2 years ago

The SBI Chairperson's solution for reining in NPAs by asking for more 'teeth' in regulations is to say the least comical.

It is tantamount to saying there is a law to hang a thief if caught, therefore keep your doors open so that if a thief enters you may hang him!

What is required is more dedication from the lending officers to the Banks they serve. They must ask themselves if they will sanction a facility to a Customer if the money is coming from their pockets

Ravindra Shetye

2 years ago

Unlessrging.the Govt takes quick action on the few who are already caught there will not be much effect of the Modi wave. The CORRUPT only learn from examples. And the examples of CORRUPTs, especially BANKERS loosing their ASSETS and GOING BEHIND the BARS are created, the new CORRUPTs will keep on eme

Ravindra Shetye

2 years ago

Unlessrging.the Govt takes quick action on the few who are already caught there will not be much effect of the Modi wave. The CORRUPT only learn from examples. And the examples of CORRUPTs, especially BANKERS loosing their ASSETS and GOING BEHIND the BARS are created, the new CORRUPTs will keep on eme

Black Money trail: Not all information can be disclosed, says govt
In an application before the Supreme Court, the Modi government said that the foreign countries, with which India has signed double taxation avoidance agreement, have objected to disclosing information on black money
 
The Indian government on Friday submitted before the Supreme Court that all the information on black money received from foreign countries, with which the country had double taxation avoidance agreement, cannot be disclosed.
 
In its application, the Centre said that the foreign countries have objected to disclosing such information and if such details are revealed then no other country would sign such an agreement with India.
 
Appearing before a bench headed by Chief Justice HL Dattu, Attorney General Mukul Rohatgi mentioned the issue and pleaded for an urgent hearing.
 
Senior advocate Ram Jethmalani on whose plea the apex court had constituted Special Investigating Team (SIT) on black money, strongly objected to the stand taken by the Centre and said that matter be not heard.
 
"Matter should not be entertained even for a day. Such application should have been made by the culprits and not by the government," Jethmalani said, adding that Centre is trying to protect the people who have stashed black money in foreign banks.
 
Jethmalani said that he has written a letter to Prime Minister Narendra Modi on this issue and his response is awaited.
 
The apex court had constituted the SIT headed by its former judge MB Shah on a plea of Jethmalani, who had moved the court for the purpose of getting black money back to the country.
 
It had appointed its retired judges MB Shah as the Chairman and Arijit Pasayat as the Vice Chairman of the SIT for providing guidance and direction in the investigation of all cases of black money in the country and abroad.

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COMMENTS

Kiran Aggarwal

2 years ago

The Indian Govt. is feeding Indian Masses a big lie.

There is a history of Corrupt Govts :all over the world and they have been proved that they were lying at one stage or the another .

I wonder Do we Indians now Have to
go UBS bank in Switzerland and talk to Key personnel over there ?

Black Money recovery is not impossible .
USA has arm twisted Swiss Banks and recovered great sum just 2 years back .
Another instance of abdication of duty by BJP govt :
Technical difficulty is real or unreal , and if this is a real difficulty , then what resolve and comittment the govt . is showoing.
Mind it - 40 crore people are living in inhuman condition in this country
Poverty Index-27 %
Only Raj babbar can eat food in Rs 5

DLF files appeal against SEBI order
DLF has filed an appeal with the Securities Appellate Tribunal –SAT against the ban, imposed by SEBI, on tapping capital markets for three years
 
DLF Ltd on Friday filed an appeal before the Securities Appellate Tribunal (SAT) against an order issued by Securities and Exchange Board of India (SEBI) barring the real estate company and its promoter, directors and top executives from capital markets.
 
The appeal is likely to be heard by SAT next week.
 
In a major blow to DLF, SEBI on Monday barred DLF and its directors including promoter KP Singh for failure to make appropriate disclosures in its prospectus at the time of its second IPO in 2007.
 
While the regulator did not impose any monetary penalty, the prohibition has barred DLF and the six persons, from any sale, purchase or any other dealings in securities markets for a period of three years, including for raising funds.
 
DLF had debt of more than Rs19,000 crore as on 30 June 2014, while its already-proposed fund raising plans include nearly Rs3,500 crore through issue of certain bonds to replace its costlier debt.
 
This was one of the rare orders by SEBI where it has barred a blue-chip company and its top promoter and executives from the market.
 
DLF is the largest real estate group in the country with nearly Rs10,000 crore annual turnover.
 
DLF's IPO in 2007 had fetched Rs9,187 crore -- the biggest IPO in the country at that time.
 
The current action of SEBI stems from a complaint filed by a Delhi-based businessman. In 2007, Kimsuk Krishna Sinha, had alleged that DLF and its directors and agents had lured and compelled him to transfer certain plots of land and did not fulfil the promise of developing the land and providing him higher returns. Other than KP Singh, who is the executive chairman of DLF, SEBI barred Rajiv Singh, vice chairman and son of KP Singh, TC Goyal, managing director, Pia Singh, whole time director and younger daughter of the DLF chief, Kameshwar Swarup, executive director for legal, GS Talwar, director and son-in-law of KP Singh and Ramesh Sanka, chief financial officer (CFO) of DLF.
 

 

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