Crisis of confidence in banking system provides an opportunity to unleash reforms
India's banking sector has been hogging the headlines for all the wrong reasons. It started with the mounting problem of non-performing assets (NPAs) across banks; then came a revelation of systemic fraud in the second-largest state-owned bank; and most recently, topping it all off are damning allegations of irregularities against the head of one of the largest private-sector banks.
 
All of these issues point towards a pandemic problem ailing the Indian banking sector, which cannot be resolved with quick-fix solutions.
 
The government's response to the issue of bad loans has been to bail out the errant banks with taxpayer's money. A massive recapitalisation plan of Rs 1.35 trillion was announced last year, bringing the total capital infusion into banks over the past decade to an astounding Rs 2.65 trillion. Clearly, such hand-outs only amount to value destruction on a colossal scale and go nowhere close to resolving the underlying problem that gives rise to the very problem of bad lending practices.
 
Meanwhile, the case of fraud at Punjab National Bank of Rs 110 billion, which involved the connivance of at least 54 employees over a period of time, is experiencing no headway either. The main perpetrator of the crime, Nirav Modi, has long fled the country. No penalty has been imposed on the bank yet and there has been no management shake-up as well. Eventually, it will be the taxpayers who will bear the cost of it all.
 
Finally, the latest case of alleged malpractice arising out of ICICI Bank involves a quid pro quo between its former MD and CEO, Chanda Kochhar, and one of its borrowers, the Videocon Group, that has dealings with a firm promoted by Kochhar's husband. A detailed investigation will bring more clarity, but there are obvious grounds for conflict of interests as Chanda Kochhar herself sat on the committee that sanctioned loans to Videocon.
 
When the problems were just limited to bad loans and even the PNB fraud, most of the guns were trained at the inefficient working of the public-sector banks. But after the ICICI case, it is evident that private sector banks fare no better. This is even more problematic because public sector banks have an implicit assurance of having the government's backing in times of uncertainty. In case of private banks, even a small problem can trigger a panic as depositors begin to flee to government banks for safety. The banking system runs on people's trust and if that is affected in any way, the repercussions will be costly.
 
So, it has become all the more important to address the core issue ailing Indian banks. All of these three instances are nothing more than a failure of governance on the part of the banks and their top management.
 
A major problem in Indian financial institutions is the lack of effectiveness in supervisory oversight. The Board of Directors are usually meant to conduct supervisory duties in any corporate set-up, including banking, but in India they are hardly held accountable for it.
 
In the United States, for instance, the central bank holds the power to dismiss a member of a bank board in case of misconduct, negligence or corruption. The boards of Indian companies similarly need to be held accountable for their role in times when the top management is found to be engaged in dubious activities.
 
Historically, India has not held the boards to as much media and public scrutiny as it has done for the CEOs of any company. This is especially true for the independent directors on the board. Independent board members by definition need to stay independent of the influence of the CEO and be the de facto torchbearers of corporate governance. A mechanism needs to be set up to make the board more accountable in case of any wrongdoing by the top management.
 
On a related note, if the 2008 banking crisis taught us anything it is that a defined regulatory framework and swift corrective measures are extremely crucial. For instance, the United Kingdom has a separate regulatory authority, the Financial Conduct Authority, to oversee the behaviour of financial entities in the country. In May, the CEO of Barclays was fined a heavy sum by the body for trying to establish the identity of the whistleblower who had complained against him. Such sound regulation can strengthen the trust in the system and improve its resilience to momentary shocks.
 
India is undergoing a crisis of confidence in its banking system. In these bleak times lies an opportunity to unleash reforms and strengthen governance. The government must refrain from temporary fixes like throwing more and more money at lenders. Such solutions only amount to kicking the can down the road. The real problem lies elsewhere.
 
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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COMMENTS

Dr.Dhananjaya Bhupathi

4 months ago

https://www.moneylife.in/article/crisis-of-confidence-in-banking-system-provides-an-opportunity-to-unleash-reforms/54417.html
1. Yes, any Bank CEO is accountable to the Board of Directors. If the Board encourages and ensures huge loans to an adjudged ‘BANKRUPT’ Debtor company; to whom the Board is accountable/liable?
2. Suppose the political boss @PMO/UFM leaves oral instructions to Bank CEO[s] and thereupon RBI Governor issues a circular to all PSBs & encourages Gold/Diamond exports by issuing LOU/LOC against hypothecation of stock-in-trade----------WHO IS RESPONSIBLE/ACCOUNTABLE TO WHOM?
3. Simply enhancing/revising salaries of CEOs, promoting A BANK[with major chunk of ‘irrecoverable bad loans] CEO to RBI is just like ‘putting the cart before the horse’.
4. SATYAMAEVA JAYATHE!!!

PSBs decide on unhindered credit flow for genuine firms
In a move to ensure that credit flow to domestic industry is not hindered by the massive non-performing assets (NPAs), or bad loans, accumulated in the Indian banking system, state-run banks on Tuesday decided to take up the genuine credit needs of companies through a two-stage process.
 
To be considered in the first stage are firms with credit needs of between Rs 200 crore and Rs 2,000 crore, while in the second stage the banks would take up accounts with borrowings of up to Rs 200 crore, Railway Minister Piyush Goyal, who also holds temporary charge of the Finance Ministry, told reporters here after meeting with heads of public sector banks (PSBs).
 
"All the banks have collectively decided that in two stages they will take up the credit needs of genuine, deserving, well-performing and good companies. 
 
"In the first stage, who have borrowings between 200 and 2000 crore rupees..there are about four and half thousand such accounts in the PSU banks, most of them in consortium lending, and the PSU banks, over the next 3 or 4 weeks, are going to do focus study of the credit needs of these good companies, good borrowers," he said. 
 
"In the second stage they will take up accounts with borrowings upto Rs 200 crore, and the banks will look into credit needs of all these companies, working collectively as a team."
 
The Minister said that in order to overcome the problem of NPAs, PSBs have decided to work in consortium instead of taking decisions individually.
 
"Banks will have a creditors agreement among themselves to iron out problems related to consortium banking. The 66 per cent rule regarding decisions in IBC (Insolvency and Bankruptcy Code) will now also be followed by consortium," he said.
 
"Banks will take a covenant to work as a team, and not in silos," he added. 
 
Goyal also said the country's largest lender State Bank of India, which made a presentation at the meeting, will help smaller PSBs to develop robust risk assessment processes. 
 
"PSU banks will now concentrate on taking a focused decision. They are looking at an external committee to strengthen the banks' working, to ensure that processes are followed and to examine whether these require to be upgraded," he said
 
On the issue of NPAs resolution, he said that a committee under Punjab National Bank Chairman Sunil Mehta has interacted with a number of bankers to work on the contours of "an Asset Restructuring Company/Asset Management Company" and a report is expected soon. 
 
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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Aadhaar: HDFC Bank advises its executive “do not to engage with customer further. If ranting, assign”
Handling social media, especially for corporates is a big responsibility and if the job is not done properly, then there could be eggs all over your face. HDFC Bank learned this hard lesson recently, when one of its executive inadvertently posted directions issued by seniors on Twitter. 
 
In its reply, HDFC Bank told Bharat Varma (@BharatVarma3) that as per its internal guidelines Aadhaar is required at the time of opening an account. In the same tweet, an internal message was also posted. It says, "NS Team: Post response and do not engage customer further. If ranting, assign. -Anay"
 
 
In his query, Mr Varma had asked whether Aadhaar is mandatory for a new account and if yes then specify the law which mandates it. 
 
Responding to this, HDFC Bank said, it was required as per its internal guidelines. At the same time, the response was not to engage with the customer further and assign the matter to other team (possibly). 
 
Mr Varma replied saying, "Your 'internal guidelines' cannot be in contravention of Indian Laws. Please specify the law under which you have made Aadhaar mandatory for opening an account. What is NS Team? Please do clarify the exact meaning of 'If ranting, assign. -Anay'."
 
HDFC Bank tendered an apology for posting the tweet reply. 
 
 
Mr Varma later pointed out that Srikanth Nadhmuni, one of the Board members of HDFC Bank was founding head of technology for Aadhaar. 
 
 
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COMMENTS

SUBHASH CHATTERJEE

4 months ago

The Banks need to adhere to the laid down regulatory guidelines and should not add their own guidelines to avoid such embarrassments

alok mital

4 months ago

I and all my family members have Aadhar card and we are happy about it.

Aarmin Banaji

4 months ago

Sorry, I am starting to have ever decreasing sympathy for people cribbing about the tribulations they have had to face because of Aadhaar.
It is because one only cribs but does not oppose and refuse to comply, that the despotic authorities are getting away with 'murder'.
As a case in point since Airtel was mentioned, even not being a young spring-chicken but a 67 year old senior citizen, when I approached Airtel and Jio to transport my existing number, both asked for Aadhaar. On telling them, I proudly do not have one and they can take a hike if an alternative identity proof (in my case a passport) was not enough, both changed their stance.
I say all this, not to blow my own trumpet but just to indicate that this issue would never have reached the dimension it has, if from day one citizens had said FO, which I did from the time UPA and the ex-joker from Infosys introduced the scheme.

Manish Singh

4 months ago

Thanks for informing. It's blatant. Even Airtel recording biometeics n found even ACT fibernet doing same.

LALIT SHAH

4 months ago

In india every new rules is Harassment to common public and for benefits some big entity . There a * mark in Aadhaar card that this is not proof of citizenship. it means it's blunder to benefit some one .
now its duty of investigating journalist to investigate actually who is benifited. ?

LALIT SHAH

4 months ago

In india every new rules is Harassment to common public and for benefits some big entity . There a * mark in Aadhaar card that this is not proof of citizenship. it means it's blunder to benefit some one .
now its duty of investigating journalist to investigate actually who is benifited. ?

Ashish M

4 months ago

This is true across all banks / institutions. Axis Bank and Kotak bank even refused to open an additional business account of my company till the Director's Aadhar was submitted. This was when our company already had ongoing older accounts with them. BPCL refused to transfer my gas connection without Aadhar (I gave up subsidy long back). Almost all colleges / schools have made Aadhar as a mandatory document for enrolling students. LIC does not allow login to it's customer portal without Aadhar. How many agencies will we fight specially when the govt is on their side ? We have to run our business / job / home as well.

Aarmin Banaji

4 months ago

Should we not admit that Cognitive Dissonance in the extreme, prevents us from discarding the concept that we can ever achieve Smart Cities or be a Smart Nation. All these smart goals are unlikely to be attained by dumb people, vainglorious to boot.

Prameela Balan

4 months ago

Till the Supreme Court ruling on Aadhar comes in, no Bank , Public or Private should make Aadhar mandatory for any purpose.

REPLY

Param

In Reply to Prameela Balan 4 months ago

this is exactly what we need. but how can a common citizen enforce supreme court's order???

Pankaj Mehta

4 months ago

I too had a HDFC rep assert on the phone that Aadhar is mandatory to issue a new credit card because of internal guidelines, regardless of any Supreme Court rulings! For a business, this does not make sense, as they lose a customer - so there must be another stronger motivation.

DeepakSB

4 months ago

HDFC bank has done this earlier also.During Nov/DEC 2016-demonitaization,one senior citizen visited HDFC bank HOME branch at Mumbai-Borivali west branch ( an urban bank branch in a metro city -Mumbai ) for cash withdrawal with a self bearer cheque,he was asked for his Identification PROOF which was disgusting.When complained to even ED of bank,matter was never answered and bank kept on defending its employees and officers.

K V RAO

4 months ago

Nice to know that someone has the guts to take on the Bank. That this time it is one of the leading private sector banks, is all the more surprising. Bank quickly apologized.

Aarmin Banaji

4 months ago

Nice to catch any and all Aadhaar Bhakts with their pants down. Not that it would make the slightest difference to these clowns with thick skin.

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