This refers to the article published on May 31 2014 under the title Dont mess with the banking sector I never imagined that an advocate for PSBs will emerge from IIM Ahmedabad. In fact my honest expectation was that the argument of the govt. and Mr P J Nayak that the profitability of the PSBs has been eroded due to mounting NPAs should have been strongly and stoutly objected and denied by the retired CMDs and EDs who were rather branded as responsible for current scenario of non performing assets. There is an organised and orchestrated attempt by a lobby against the PSBs to paint a bad picture on PSBs by placing faulty following arguments; 1. Nationalised banks are making losses. 2. Nationalised banks are inefficient. 3. Boards of nationalised banks are ineffective and they could not contain NPAs. 4. Privatisation is the Panacea for obviating the above listed evils. 5. Private banks are superior in all above aspects. 6. Complying Basel III norms is the only way to strengthen the PSBs. 7. Govt. does not have the means to infuse the fresh equity to match the Basel III norms. 8. Thus the govt. divest their equity held in PSBs, and in turn PSBs will be mobilising funds from the market. 1. As rightly argued by Mr T T Ram Mohan, the comparison of the PSBs with only the surviving Private sector banks are not only faulty but it can be branded as mischievous too. Except the merger of New Bank of India - a PSB with PNB there is no incidence in the banking sector that there was a need to extend a helping hand in administration to a PSB in view of poor and inefficient management. On the contrary, Indian history and public are aware that on hundreds of occasions PSBs were compelled to absorb the losses made by the private sector banks by taking over such mismanaged private banks by the PSBs. It includes the forced take over of Global trust bank started with big fanfare after 1990 by Oriental Bank of commerce. Where Times Bank now? Where bank of Punjab now and we know what is happening in the board of Yes bank today. It is certainly unfair to compare the ever performing PSBs with few surviving private banks forgetting the fact of so many failures of private banks due mismanagement. Another irony is that the Indians cannot claim with pride that these few surviving private banks are Indian entities as they are in the way of totally becoming foreign banks. ICICI bank is no longer an Indian bank and HDFC bank follows suit. Whereas the PSBs after bearing the inherent shocks of the undulated economy it absorbed bad debts and deeds created by the private banks and its board, still survives like a giant making huge profits and giving hefty dividends to the Govt. Whether the Nationalised banks are making loss? As on March 2013, gross earnings of the PSBs is about 121000 crores and even after providing about 75000 crores towards bad debts, Dividend and tax the PSBs have still recorded about 50000 crores net profit. You may recall the comment of Our Former finance Minister Mr P Chidambaram who stated that he cannot share the profit with the employees, but he never told PSBs are not making profits. If the PSBs are making losses how you are going to brand the govt. the majority share holder takes away about 110 percent dividend from the PSBs. Which loss making entity can declare 110 percent dividend beside contributing towards the exchequer in the guise of income tax? Whether the PSBs are inefficient and the boards are ineffective? Entire board of PSBs is constructed by the Govt. except the employee and other than employee directors. CMD,EDs, Govt. Director, RBI director, other nominee directors and even the share holders directors are identified and appointed by the Government. If the Govt. find any flaw in the selection process, is it not wise to alter the system of selection to ensure the selection of right person instead of hand over the PSBs to private hands? Who prevented the govt to identify and appoint the directors matching the calibre of few surviving banks directors? AS FAR AS THE NATIONALISED BANK EMPLOYEES AND OFFICERS ARE CONCERNED THEY NEED A SPECIAL MENTION HERE. A FAULTY DECISION WAS TAKEN DURING 2000 TO SEND HUGE WORK FORCE ON SVRS WHICH RESULTED IN THE LARGE EXODUS OF PERFORMING WORKFORCE. ANOTHER FAULTY DECISION WAS THAT THE GOVT. IMPOSED BAN ON FRESH RECRUITMENT AND TO REMAIN WITH THE TOTAL STAFF STRENGTH OF POST VRS. WHEN THE BANK NEEDS PERSONS TO HOLD HIGHER POSITION THEY HAD TO PROMOTE INTERNALLY WITHOUT INFUSING NEW BLOOD. BUT THIS SAME WORKFORCE UNMINDING AGONIES OF ADVANCING AGE AT AN AVERAGE AGE PROFILE OF BEYOND 50 YEARS BRAVED THE VARIOUS TECHNICAL ADVANCEMENTS TOOK PLACE IN THE INDUSTRY, SUBJECTING THEMSELVES TO AN UNFRIENDLY TRANSFER POLICIES MOVED THROUGH OUT THE COUNTRY AND STILL MANAGING 70 PERCENT OF MARKET SHARE. IT MAY NOT BE OUT OF PLACE TO MENTION THAT THE INDIAN BANKING SECTOR HAS ENTERED IN TO A DYNAMIC SITUATION AFTER 90s WHICH WITNESSED THE FREQUENT CHANGES IN TECHNOLOGIES. THE PSB WORKFORCE HAVE DISPLAYED THEIR UNMATCHING EFFICIENCY AND SKILL BY SHIFTING TO ALPM AND TOTAL AUTOMATION WITH BRANCH SERVER AND THEN NOW TO CBS WITHOUT ANY MURMUR. YOU MUST AGREE THAT THOUGH THEY ARE NOT ENJOYING THE ADVANTAGE OF PRIVATE SECTOR BANK EMPLOYEES WHO DIRECTLY GOT INTRODUCED CBS AT COMPARATIVELY YOUNGER AGE, THE PSB EMPLOYEES SUCCESSFULLY UNDERWENT ALL THE METAMORPHOSIS AND ARE MANAGING EFFICIENTLY 70 PERCENT OF BUSINESS AT AN AVERAGE AGE OF 55 years. Sir, it is the high time that all the beneficiaries of the PSBs are to come out to fight intellectually against the forces attempting to privatise the banks. Trade unions also perhaps to change their style of fighting from emotional to intellectual. What is main and major objective of BASEL III norms? According to the BCBS, the Basel III proposals have two main objectives: • To strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector • To improve the banking sector’s ability to absorb shocks arising from financial and economic stress, which, in turn, would reduce the risk of a spillover from the financial sector to the real economy. It might be observed from the above that the BASEL III norms are very much required for private banks as there is a long history of big failures. Even when Lehman brothers tasted the dust, it was the govt. Stepped in to bail them out. But Indian PSBs never had any problem like this, rather they always extend helping hand to bail out private banks whenever they failed. Why the same norms applicable to private banks which are notorious for failure despite their size to be applied to PSBs which are Govt. Owned Banks and never had the history of failure? Is it not an irony that the Govt.in order to comply the Basel III norms, wants to privatise the existing strong PSBs of India on the argument that they want to strengthen the Banks and making them vulnerable to failure and mismanagement which we witnessed over a period? Even if there is a compulsion to comply the BASEL III norms why the Govt. Cannot think of finding new ways and avenues to infuse the equity than to privatise the banks? 1. Huge immovable assets owned by PSBs are easily liquidable and by permitting the banks to revalue and to reclassify such assets in to Tier I capital from currently classified Tier II capital, the PSBs can improve their equity. It may encourage the banks to annexe some valuable immovable assets attached to bad debts instead of auctioning and end up in lesser realisation and thus converting the bad provisioned liability to good realisable asset. 2. The govt. Can forego the dividend for three years which can be converted to equity. 3. The Govt. Can also allow the bank to retain the income tax for next three years which can also be converted into equity. 4. By adopting stringent norms on the style of Supreme Court towards Sahara group against the erring corporates huge amounts of crores can be released from the provisions made in the balance sheet and converted in to equity. I invite all my seniors, elders, former executives, former CMDs, EDs, all other beneficiaries and stake holders to step in to this mission of SAVE PUBLIC SECTOR BANKS Sri T T Ram Mohanji set the tone.......... Let us ensure it is done........
Posted on: Sun, 01 Jun 2014 18:12:52 +0000
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