THE MENACE OF BAD LOANS

                                                         - MILAN K SINHA

Just after reviewing the quarterly performance of state-run banks, the union finance minister informed the media, 'Bad loans of PSU banks are expected to be slightly higher by March-end from a year earlier and banks have been asked to focus on recovery of bad loans, particularly large NPA accounts.'

There is no denying the fact that the biggest challenge facing the public sector banks is their ever growing NPA portfolio. In fact, bad loans of PSU banks rose by 28.5 per cent from Rs.1.83 lakh cr in March, 2013 to Rs. 2.36 lakh cr in September’13- within just two quarters. By all indications, it is going to be far worse by the end of this fiscal.

The matter assumes greater concern as it is reported that one of the Kolkata based PSU banks- United Bank of India has recorded huge surge in its NPA portfolio. In the September quarter, it had to make provision for NPA to the extent of Rs.987.35 cr which rose to Rs.1857.83 cr in the December’13 quarter. The bank’s gross NPA rose from 5.39%  to 10.82% during the same period. As a natural outcome, United Bank recorded a net loss of 1238 cr. in December'13 quarter. Its net worth has also registered substantial erosion and its capital adequacy ratio dropped to the floor level of 9%. 

But, how did it happen in the first place despite so much internal checks and balances; strict control and regular supervision by the RBI and also by other statutory authorities as per the law of the land? What is the efficacy of quarterly review mechanism being undertaken religiously by the ministry? 

Interestingly, yet very unfortunately, this is not the first case of its kind for any state-run bank. It does happen in almost all banks - both public and private in differing magnitude depending upon various factors contrary to the laid down norms of classifying an asset. To put it straight, all banks allow its top brass to influence, if not manipulate the asset recognition exercise to boost profit and show better bottom line performance. If we take a ten year span to see and analyze the balance sheet of any bank after taking over of the new CMD or CEO and the previous one of his or her predecessor, we can very well see large variation in both the figures of NPA as well as profit for obvious reasons.  

Industry watchers say that there is nothing unusual about this and it is also not without the know of regulator and the ministry  as almost every new incumbent to the top post faces this music of hidden NPAs and under reporting of bad loans  by the previous top management. 

Yes, a far more severe than what happened in United Bank's instant case did happen with Chennai based Indian Bank in early nineties. The entire banking industry was under attack from all corners during that period- ironically a period when the economic liberalization had started taking shape in this country. But, that was the period of manual banking, unlike today’s technology based CBS banking where everything is computerized and IT enabled. Moreover, United Bank of India too uses the same computer software named Finacle for accounting purposes as many other banks in India.

To put it in plain words, the prudential norms of asset classification and income recognition is not strictly complied by the banks in the country as per the laid down principles by maintaining a fair and transparent system. And most importantly, the follow up, monitoring and control mechanism of RBI and ministry have not been full proof and up to the mark to ensure early detection of irregularities for initiating timely and effective action to keep the banking sector always in good health.   

As always, I am keen to know what you think on this subject. Hence, request you to post Comments to share your views and experiences.

                  Will meet again with Open Mind. All the Best.
# Published in Indian Currents.org
# Do visit my site : milanksinha.com

TIME TO EXCEL IN ELECTION EXERCISE

                                                                     - Milan K Sinha

Finally the Election Commission of India (ECI) announced the nine – phase poll schedule for election to the 16th Lok Sabha and also for three state assemblies namely Sikkim, Andhra Pradesh and Odisha to be held during a long span of thirty six days between 7th April to 12th May,2014. The counting for the 543 Lok Sabha constituencies along with the three state assemblies will, however be taking place on a single day – 16th May, 2014.

As rightly asserted by the chief election commissioner V. S. Sampat while sharing the details of poll schedule, ‘Elections to the world’s largest democracy pose immense challenges with respect to logistics and man and material management…’, the ensuing election will see the participation of   814 million strong electorate- more than the population of Europe, by casting their vote in 9.3 lakh polling booths across the country to make it the biggest democratic exercise in the world. It is interesting to note here that in in the last Lok Sabha election of 2009 the number of electorate was 98 million less at  716 million  and the polling stations was one lakh less at  8.3 lakh.  One more defining change, to facilitate the contesting candidates and also to political parties, is the enhancement in prescribed expenditure limits. Only a few days back, as we know, the union cabinet approved an amendment to the Conduct of Election Rules, 1961, and upwardly revised the limit for election expenditure by a candidate for parliamentary constituencies from Rs. 40 lakhs to Rs.70 lakh in all states except Arunachal Pradesh, Goa, Sikkim, Andaman and Nicobar Islands, Chandigarh, Dadra and Nagar Haveli, Daman and Diu, Lakshadweep and Puducherry, where it was kept at Rs.54 lakh.

We are 66 year old independent country where the Election Commission was established in accordance with the Constitution on 25th January 1950 and where the first general election was held 61 years ago in 1952 with 61.20% voter turnout. But, it is extremely shocking to observe that the voter turnout in last Lok Sabha election of 2009 was only 58% – even 3% less than what it achieved in 1952.  Ironically, the turnout percentage hovered between the highest of 61.97% and lowest of 56.97% in the seven general elections held during the period between 1989 to2009. That does mean besides many things that around 40% adult citizens have no say in electing a government supposed to rule them too for next couple of years in the name of inclusive politics based on equity and justice. Why it is so? Is it the real democracy our constitution talks about?

Reports say that the election commission took many initiatives which include its mega awareness programme of Systematic Voters’ Education and Electoral Participation (SVEEP) — particularly in areas known for low turnouts to encourage voters to exercise their basic democratic right. All this would definitely help boost voting percentage in coming election besides factors like inclusion and participation of youths and women in sizable numbers across the country due to multiple socio-political factors. But to what extent?

On number scale even 5% to 10% increase in voter turnout might look like a very big achievement for ECI but it shouldn’t be allowed to be complacent on this score on such low percentage improvement. This issue, therefore calls for serious introspection and matching remedial action on the part of ECI during the intervening period as it has the bounden duty not only to ensure  enrolment of all eligible citizens very genuinely- pruning the fake voters simultaneously from its rolls, on highest priority, but also to create such a congenial situation which prompts, if not compel, every voter to cast his or her vote (now NOTA option is also available on EVM) in a free and fair manner to register minimum  voting turnout of 90% in next Lok Sabha elections and in each election thereafter to let our democracy function in true sense of the term.

Hope, the ECI, the central and all state governments together with all political parties make this happen by enlisting support and cooperation of civil society in an unprecedented manner  to register its best ever  performance in the next election exercise.

As always, I am keen to know what you think on this subject. Hence, request you to post Comments to share your views and experiences.

                Will meet again with Open Mind. All the Best.
# Published in Hastekshep.com

# Do visit my site : milanksinha.com

TOUGH GOING FOR COMMON MAN

                                                        - MILAN K SINHA

With fresh snow fall and rain in northern part of the country including national capital, the cold weather prolonged its stay for some more days amid plethora of dampening news of Indian Economy too suffering from cold with no signs of fast recovery at least during the current fiscal despite certain monetary and fiscal measures taken by RBI and the central government.  Revision and re- revision of estimated Gross Domestic Product (GDP), Fiscal Deficit (FD), Current Account Deficit (CAD) and other economic and financial indices have been  worked out as a desperate attempt to make the figures look not that bad to affect the electoral prospects of UPA partners in the ensuing 16th general election. The presentation of vote of account (interim budget) for FY14-15 in Lok Sabha on 17th Feb'14 is seen as part of that political exercise of ruling coalition at the Centre.

However, while presenting the interim budget of 2014-15 the Union Finance Minister said, 'Let me begin with the good news. The fiscal deficit for 2013-14 will be contained at 4.6 per cent of GDP, well below the red line that I had drawn last year. More importantly, the Current Account Deficit, that threatened to exceed last year’s CAD of USD 88 billion, will be contained at USD 45 billion, and I am happy to inform the House that we expect to add about USD 15 billion to the foreign exchange reserves by the end of the financial year.'

The fiscal deficit, which is the gap between expenditure and revenue, was 4.9 per cent of GDP in 2012-13. Experts are of the opinion that the fiscal deficit could be restricted to 4.6% mainly by shrinking expenditure and higher-than-expected realization from the auctioning 2G radio spectrum. It is notable that plan expenditure was also reduced by 14.37%. Moreover, to achieve its fiscal deficit target the government resorted to accounting tactics  for covering up ballooning subsidy bill by rolling over fuel subsidy worth Rs.35,000 crore to the next fiscal, while remaining silent on the roll-over figures for food and fertilizer subsidies. The question is – why to adopt short cuts to paint and project a bright picture?

So far containing India’s Current Account deficit (CAD) at the level of $45 billion this fiscal - a reduction of $33 billion from the record high level of 2012-13, is concerned,   both the finance ministry as well as the RBI (Reserve Bank of India) did all to curtail gold imports - one of the major reasons for the record CAD in financial year 2012-13. In fact, the customs duty on gold was increased by 10% in not less than three doses by the central government in current financial year and RBI on its part imposed a series of curbs on inward shipments of gold. The question is – who had allowed gold imports so thoughtlessly which impacted CAD so badly? 

Interestingly, a deeper look at government’s balance sheet reveals that as high as 37% of government revenue goes to service interest on borrowings. It is also estimated that a major chunk of our borrowings in 2014-15 will be cornered for payment of interest on total borrowings. The simple question is – are we heading towards a situation of ‘Debt Trap’? 

From the common man's perspective, even though both the government and the RBI claim to have acted in tandem to bring down price rise, yet the food inflation is at 8.8% - a major cause of concern. FM admitted this by saying, “While our efforts have not been in vain, there is still some distance to go. Food inflation still remains a worry."

So, going by the major economic data mentioned herein above coupled with political indecisiveness at the apex level even on economic issues concerning the general well-being of millions of common people, it is but natural for the citizens of the country to be highly apprehensive of further escalation in prices of essential commodities at least during next few months till new government assumes power at the Centre and then takes some concrete measures on this count.

It being so, the Indian economy is destined to be in bad weather for some time more, the  implication of which, we know well, is and would be fatal as far as job creation, implementation of welfare schemes, external debt & interest servicing, investment prospects, price rise etc. are concerned.

The bigger question now is - can a country having huge human as well as natural resources (with world's largest youth force) allow it to happen like this anymore or should it stand up not only to compel the policy makers and political class to act decisively at all levels to ensure robust and inclusive economic growth in coming years but also to identify and punish suitably all those political and administrative bigwigs who have been responsible and accountable for this sordid state of economy. 

As always, I am keen to know what you think on this subject. Hence, request you to post Comments to share your views and experiences.

                Will meet again with Open Mind. All the Best.

# Do visit my site : milanksinha.com