PSU Banks Are Sick Due To Poor Administration AND Low Risk Management

Risk management of PSBs lower than pvt sector banks

Mumbai, Dec 16, 2012, PTI:

RBI’s Chakrabarty blames governance issues for poor performance of PSBs

Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty has said risk assessment capability of state-run banks is lower than private sector banks and asked PSBs to develop the habit of saying “no” to unviable proposals.

“Knowingly you give money to some unviable projects. That is a governance issue... In many cases, our public sector bankers have forgotten to say ‘no’, except to small borrowers. A banker’s first characteristic should be to say no,” Chakrabarty said.

The senior-most deputy governor, himself a commercial banker before being appointed by RBI over three years ago, pointed out that “governance issues” in the functioning of public sector banks are leading to poor performance.

“The basic issue is that the risk assessment capability and ability to price risks amongst public sector banks is lower than the private sector banks or foreign banks,” he said.

“The governance capabilities for the state-run banks are definitely inferior (to their private sector counterparts),” Chakrabarty added.

According to RBI data, gross NPAs of public sector banks (PSBs) rose to 3.3 per cent as on end March 2012, from 2.4 per cent a year ago, while for private lenders, the ratio declined to 2.1 per cent from 2.5 per cent during the same period.

A recent Icra report warned that the bad assets book of banks are set to cross the Rs 2 trillion mark or about 3.8 per cent of the total asset book this fiscal, driven mostly by public sector banks. 

The case of the state electricity distribution companies is cited by many experts as an example, wherein banks kept on lending to the financially unviable companies and are now looking for a partial state bailout running into thousands of crores of public funds.

Stating that the poor borrowers are subsidising the rich, Chakrabarty said it was not the small borrower who is a threat to banking as his repayment track record is much better than larger ones.

“Loans are not as bad in agriculture as loans to big corporates,” Chakrabarty, who is in-charge of banking supervision at the central bank, said.

He also cited a real-life example of public sector banks taking bad decisions which in turn result in stressed assets. He said foreign banks manage to transfer stressed portfolios and unfortunately these are lapped up by public sector banks thinking these are very good assets.

“So long as corporates can pay, they all deal with private sector and foreign banks. But when they are vulnerable, they come to state-run banks. Unfortunately, a combination of factors is responsible for this. 
Fundamentally, it is a structural issue, a skills issue and a governance issue.”

He attributed the problem of rising bad assets mostly to poor administration and low risk management practices at state lenders.

“I call NPA as non-performing administration. We have to make the administration functioning,” Chakrabarty said, adding the change in the administration has to come in a slew of areas which would be both internal as well as external.

Chakrabarty also attacked the “herd mentality” shown by public sector bankers in lending to a particular borrower just because their peer is lending, saying that this is a sign of weak governance and management. 

http://www.deccanherald.com/content/298954/risk-management-psbs-lower-pvt.html

MY  OPINION:   

It is unfortunate that bankers instead of curing the sick system , instead of removing corrupt officers from top posts, instead of improving Human Resource policy to make it friendly for real performers, instead of accelerating recovery process, instead of providing adequate manpower , instead of strengthening risk management , instead of gearing up skilllevel of loan processing officers ,  instead of monitoring tools for keeping their asset healthy , instead of saying spade a spade in time and taking corrective action in time against defaulting borrowers or corrupt loaning officers ------------------------------------------------  Bankers always blame interest rate for worsening asset quality or blaming global recession for rise in bad debts or requesting RBI to reduce Repo rate , reduce CRR or  pay interest on CRR to earn profit.

It is important to say that even CRR is removed or government permits payment of interest on CRR or reduce repo rate, corrupt , unskilled officer and incompetent officer cannot ensure safety of their assets.These banks have already earned huge profit by reduction in CRR rate and after all liquidity generated by release of CRR or payment of interest on CRR will provide relief for few months and for few quarters only. After Entire CRR is released , bankers will have to accept the bitter truth and will have to cure the system to keep the asset in good condition. 

Management of public sector banks want to earn profit by exploitation of their workforce and this is why they have stopped recruitment inspite of large scale.  expansion of branch network. They do not like to promote real performers and this is why top executives who mostly are in charge of big branches and who sanction high value loans are responsible for abnormal rise in bad assets in these banks. Officers are promoted to top cadre but the health of branch or bank is going from bad to worse. 

Government will have to make adequate step to ensure that adequate manpower is provided in all branches and corrupt top ranked officers are immediately punished even if he or she is ED or CMD of a bank. If more than 25 % of Branch Managers in a region do not perform , it means Regional Head is incompetent , If most of regional heads are failing in their performance , Zonal head or central office level officers are failure in their task and hence they must be taken to task in the same way these Regional Head or Zonal Head punish Branch Head of Branch officers for non performance.

13 banks black listed in Bihar for poor lending

Published: Sunday, Dec 16, 2012, 21:04 IST  ( NEWS FROM   DNA )

Penalising for non-performance in loan disbursal in priority and agriculture sectors, Bihargovernment has cracked whips against 13 public and private sectors banks and decided against depositing its cash with these banks, Deputy Chief Minister SushilKumar Modi said on Sunday.

"Disbursement of loans in priority and agriculture sectors and KisanCredit Cards (KCC) has been found to be poor by 13 banks as they failed to obtain a minimum of 25 marks out of 100 on the basis of performance on four parameters - priority sector, agriculture credit, KCC and credit-deposit ratio", Modi said.

It was decided that the state government would not keep its cash with these 13 non-performing banking institutions till further orders, the said.

The black listed banks are Punjab National Bank, ICICI Bank, Andhra Bank, Bank of Maharashtra, Punjab and Sindh Bank, Vijaya Bank, Federal Bank,Jammu and Kashmir Bank, South Indian Bank, ING Vaishya Bank, KotakMahindra Bank, Bombay Merchandile Cooperative Bank and TapeshwarUrban Cooperative Bank.

Modi, who holds the finance portfolio said the largest public sector bank SBIhad been asked to improve disbursal of credit in the designated sectors as it had just made the cut by obtaining 28 marks out of 100 following review of its performance.

The deputy chief minister, however, lauded five banks - Bank of India,Allahabad Bank, HDFC Bank, UCO Bank and Canara Bank - for its overall performance in disbursal of loans in designated sectors, but said these banks must further improve their lending rate in all four sectors being assessed by the state government on half-yearly basis.

http://www.dnaindia.com/india/report_13-banks-black-listed-in-bihar-for-poor-lending_1778243

Bankers Should Learn To Say NO to Unviable Proposals

Start saying say no to unviable projects, public sector banks told (From The Hindu Business Line)

MUMBAI, DEC 16: 

RBI Deputy Governor K.C. Chakrabarty has said risk assessment capability of state-run banks is inferior to private sector banks and asked the former to develop the habit of saying “no” to unviable proposals.

“Knowingly you give money to some unviable projects. That is a governance issue... In many cases, our public sector bankers have forgotten to say ‘no’, except to small borrowers. A banker’s first characteristic should be to say no,” Chakrabarty told PTI in an interview.