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Turn Around Plan for Banks – Who is to bell the cat?

Thomas Franco
   Friday 31 March, 2017  

In a surprise move, the Govt of India has forced 10 Public Sector Banks to sign an MoU in return for a small amount of capital.  Many wonder why an MoU was required and why Unions and Associations are expected to sign.  Is this a blank cheque for privatisation? Is it like taking the consent of a sacrificial goat by applying turmeric and water and getting its nod before sacrifice? The Government is like a parent and Public Sector Banks are like children. Will the parent take an undertaking from a child? These are questions which have to be answered by the Government.

The Associations and Unions refused to sign unless there is some change in the MoU and their concerns are addressed urgently.  Finally the DFS modified the MoU by inserting a clause that the Employees Unions and Officers Associations will be consulted to prepare a turnaround plan.   

The following note was added: “While finalising the MoU the interests of the bank, the officers and the employees shall be kept in mind to ensure that the entire workforce is enabled to whole heartedly work for the turnaround of the Bank.”

Associations also gave a letter expressing their concerns on appointment of officer / Employee Director, on implementation of the recommendations of the Parliament Standing Committee on NPAs, etc. Will the MoU preclude Associations / Unions from going on agitation on these issues?  No.  An MoU is only an understanding.  If the issues are not properly addressed, the Associations/Unions will definitely be able to agitate.  If the turnaround plan is not addressing the real issues, there will not be any final MoU.

What is worrying is the hesitation of the Government to provide capital.  The Capital given by Indian Government is very meagre when compared to other countries.  US had to pump in more than 3% of GDP into the banks to save them because they had failed due to the policies which resulted in toxic assets.  Japan has provided huge capital.  China continues to do so because banking is seen as important for the development of the nation. In India the Government’s investment is not even 0.5% of the GDP. This despite the fact noted by Soumya Kanti Ghosh, Chief Economist of SBI in the Economic Times that Public Sector Banks have given back 300 per cent by way of dividends and taxes to the government.

Besides, if the NPAs are recovered there is no need for Capital. 

In China, the Govt has issued an order that wilful defaulters should not be issued any airline/bullet train tickets whereas we allow Vijay Mallya (Kingfisher), Jatin Mehta (Winsome Diamonds) and others to fly off and settle abroad.  Their liquor and other businesses still flourish and we keep writing off their loans.  Meanwhile, there is mafia like collaboration among the rich.  Nobody even attends the auction when Mallaya’s mansion is put under the hammer.  

If the Govt takes action and recovers the loans above 1 Crore given to around 2000 persons there is no need for capital for the Banks.

Why is there hesitation to implement the recommendations of Parliament Standing Committee? Why are infrastructure loans not restructured? Why are development finance institutions not allowed to function?

Why Banks are afraid of giving loans?

All due to Govt policies.  Does the Govt want to touch the big borrowers? It is the policies since 1991 which has lead to massive large NPAs. NPAs have been there from the day Banks started and write offs have been there.  That did not affect the Banks because the loans were small, given to large number of borrowers.  Now we have few large borrowers garnering the major credit and many of them default.  RBI data as on March 2015 shows that 11000 borrowers have been given a credit limit which is 31.5% of the total credit given by commercial banks.  So it is the Central Govt which has to bell the cat.

The simple ways for turnaround plan are:


  • Strict recovery of NPA’s including personal assets of the big borrowers.
  • Change the system of Governance in Banks with a bottom up approach.  Involve everybody in teams and create a sense of ownership
  • Is it not a big contradiction that Banks are saying credit off take is not improving whereas millions of customers are saying they are not getting credit?
  • Increase the volume of loans and the borrower base which will reduce the percentage of NPA
  • Start lending to the small and marginal farmers, small traders, small industries etc and reduce Corporate Lending.
  • Have a cap on large borrowals where the Banks exposure should reduce.  The Debt of Reliance Industries is Rs.107130 Cr. Reliance communication Rs.34802 Cr, Reliance Infra Rs.17097 Cr, Reliance Defence and engineering RS.6354 cr, Reliance Power Rs.4496Cr.  If they default you can’t declare as NPA as it will make the Banks go bankrupt.  

Real turnaround can take place only if there is a turnaround in policies. Is the Govt. and RBI ready to change the policies? Where there is will there is way. 

“It’s always the best policy to speak the truth, unless of course, you are an exceptionally good liar”- Jerome K. Jerome.

* Thomas Franco (ngcfranco@gmail.com)




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