What went wrong at United Bank? My question is what has the RBI, which is the regulator of the banks, been doing all this time? Why didn’t the RBI man on UBI’s board alert his bosses on the goings-on? The central bank and the government miserably failed in their oversight. Bad loans do not occur overnight. Many of the middle-level, senior and top managers could quite possibly have colluded with the big-time corporate borrowers. Ans. It is very astonishing to note that employees union says officers have colluded with corporate borrowers. The workman director sitting on the banks board was silent all these years and now woken up and blame the officers. The Officers union to answer the allegation made workmen union. Why are NPAs rising in some private banks too? Commercial banks are supposed to provide short-term loans — for working capital, for instance — to businesses, industries and farmers. Indian banks are doing pretty well in this area. But, a long-term, high-volume loan to a massive infrastructure project is a different kettle of fish. Banks’ costs and risks in project finance are high. Ans. Private Banks manages well. Short term loans are monitored by the field officers/middle level managers but corporate loans are sanctioned by higher grade officials and the branch manager has little say. In one of the banks, periodical inspections were not conducted and when the concurrent auditor points out the same, the senior officials are annoyed. How can this risk be mitigated? Project finance requires high levels of expertise in several areas. For instance, it requires long-term market analysis of services and products of the projects to which financing is provided. It requires risk assessment, tracking global market movements, environmental impact, etc. Most banks don’t have the expertise for such critical analyses. Ans. The Banks are now recruiting CAs and these officials are utilised for credit management but it takes time for these officials to get acquainted with the credit management. The existing high profile loans to be reviewed by utilising the services of retired officials with the analysis made by the team of senior chartered accountants engaged together with concurrent auditors view and reports. In one of the leading bank, the head office has called for information from the branches to conduct stock audit and they are yet to receive even after lapse of considerable time. The Head Office should depute their officials and get the borrowers list to conduct stock audit and action taken against the branch managers for not submitting the list of borrowers for stock audit. Has the economic slowdown impacted NPA levels? Macroeconomic factors affected repaying capacities of many corporate borrowers. Not all corporate borrowers are willful defaulters; most of them really want to repay but are unable to do so because their businesses are not doing well. But there are many corporate crooks who know how to milk public sector banks. These criminals should be prosecuted and put in jail. The AIBEA has compiled a list of 50 top corporate defaulters and Kingfisher tops the list. Many of these are willful defaulters. Ans. Many of the corporate houses are to receive crores of rupees from various government departments; which resulted in slow down of their business. But most of the corporate houses are managed to utilise the benefits of CDR system. The RBI should call for Data of such CDR beneficiaries and scruitinise the same to bring out the irregularities in processing the CDR applications. But real fact is that the most of the corporate houses have diverted the funds for establishing sister concern etc. When AIBEA has compiled the list of 50 top borrowers, the same should be made public and media to circulate the same. What can be done to check NPAs? First, vastly improve oversight by the RBI and the government. Second, amend laws to make willful default of bank loans a criminal offence. Third, strengthen the mechanism of Debt Recovery Tribunals. Fourth — and this is very important — is the setting up of specialised agencies for industrial financing, infrastructure financing and development financing. Only such agencies should provide project finance. Banks should confine themselves to short-term and medium-term loans to farmers, and small and marginal enterprises. What went wrong at United Bank? My question is what has the RBI, which is the regulator of the banks, been doing all this time? Why didn’t the RBI man on UBI’s board alert his bosses on the goings-on? The central bank and the government miserably failed in their oversight. Bad loans do not occur overnight. Many of the middle-level, senior and top managers could quite possibly have colluded with the big-time corporate borrowers. Ans. It is very astonishing to note that employees union says officers have colluded with corporate borrowers. The workman director sitting on the banks board was silent all these years and now woken up and blame the officers. The Officers union to answer the allegation made workmen union. Why are NPAs rising in some private banks too? Commercial banks are supposed to provide short-term loans — for working capital, for instance — to businesses, industries and farmers. Indian banks are doing pretty well in this area. But, a long-term, high-volume loan to a massive infrastructure project is a different kettle of fish. Banks’ costs and risks in project finance are high. Ans. Private Banks manages well. Short term loans are monitored by the field officers/middle level managers but corporate loans are sanctioned by higher grade officials and the branch manager has little say. In one of the banks, periodical inspections were not conducted and when the concurrent auditor points out the same, the senior officials are annoyed. How can this risk be mitigated? Project finance requires high levels of expertise in several areas. For instance, it requires long-term market analysis of services and products of the projects to which financing is provided. It requires risk assessment, tracking global market movements, environmental impact, etc. Most banks don’t have the expertise for such critical analyses. Ans. The Banks are now recruiting CAs and these officials are utilised for credit management but it takes time for these officials to get acquainted with the credit management. The existing high profile loans to be reviewed by utilising the services of retired officials with the analysis made by the team of senior chartered accountants engaged together with concurrent auditors view and reports. In one of the leading bank, the head office has called for information from the branches to conduct stock audit and they are yet to receive even after lapse of considerable time. The Head Office should depute their officials and get the borrowers list to conduct stock audit and action taken against the branch managers for not submitting the list of borrowers for stock audit. Has the economic slowdown impacted NPA levels? Macroeconomic factors affected repaying capacities of many corporate borrowers. Not all corporate borrowers are willful defaulters; most of them really want to repay but are unable to do so because their businesses are not doing well. But there are many corporate crooks who know how to milk public sector banks. These criminals should be prosecuted and put in jail. The AIBEA has compiled a list of 50 top corporate defaulters and Kingfisher tops the list. Many of these are willful defaulters. Ans. Many of the corporate houses are to receive crores of rupees from various government departments; which resulted in slow down of their business. But most of the corporate houses are managed to utilise the benefits of CDR system. The RBI should call for Data of such CDR beneficiaries and scruitinise the same to bring out the irregularities in processing the CDR applications. But real fact is that the most of the corporate houses have diverted the funds for establishing sister concern etc. When AIBEA has compiled the list of 50 top borrowers, the same should be made public and media to circulate the same. What can be done to check NPAs? First, vastly improve oversight by the RBI and the government. Second, amend laws to make willful default of bank loans a criminal offence. Third, strengthen the mechanism of Debt Recovery Tribunals. Fourth — and this is very important — is the setting up of specialised agencies for industrial financing, infrastructure financing and development financing. Only such agencies should provide project finance. Banks should confine themselves to short-term and medium-term loans to farmers, and small and marginal enterprises.
Posted on: Fri, 21 Mar 2014 12:00:41 +0000
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