BANK-O-VOICE - SBIOA JAIPUR o voice April 2018.pdf · the long term health of our Bank. 2. State Bank of India has a long history of over 200 years, built with trust, business ethics,

For Internal Circulation only

1

BANK-O-VOICE A monthly bulletin of SBIOA, Jaipur Circle April, 2018

SBI OFFICERS’ ASSOCIATION, JAIPUR CIRCLE

2 State Bank of India Officer’s Association, Jaipur Circle April ,2018

To the team Jaipur Circle on winning SBI Inter Circle Volleyball

Tournament-2018

Proud Moment for SBIOA Jaipur Circle

As our Circle President Sh. Ramavtar Singh Jakhar

&

Prabhu Lal Jat our Zonal Secretary was part of the

Winning team


Our Jaipur Module was allotted Association Office space

By the Bank in Zonal Office, Jaipur Building

some photographs of the moment being celebrated by the

Office Bearers of the SBIOA Jaipur Circle in the presence of

Module DGMs on 26th March 18


ALL INDIA BANK OFFICER’S CONFEDERATION, RAJASTHAN STATE

REPRESENTATIVES HANDING OVER

THE COPY OF AIBOC

MEMORANDUM ADDRESSED TO RBI, GOVERNOR

ON NPA PROVISIONING NORMS

DEMANDING WITHDRAWAL OF RBI CIRCULAR ON

ASSETS CLASSIFICTION NORMS


CNC Meeting at our Circle on 30th March 2018

Following issues were taken up by us with the Management for prompt resolution. The deliberations were held in a very positive manner and lots of positive decision were taken in the meeting and are expected to be implemented shortly: Recoveries made on account of TDS

from officers who had availed LFC and visited foreign land;

The authority structure in respect of sanction of Casual leave of officers posted at Branches related issues;

Acute shortage of Scale I/II officers in the circle

Issues pertaining to officer‘s recruited under sports quota;

The LFC entitlement issue; The NPA recovery incentive as on

31.3.2017 ; The payment of Demonetization period

Compensation; RBI Penalty on account of

demonetization not to be recovered from officers;

Non- Release of Scholarship in respect of pending cases for 2016-2017 ;

The issue regarding improvement in Canteen Facility in the LHO /AOs /RBOs ;

Sunday/Holiday working related issues; Single Officer Branch issues; Change of Capability of staff in CBS at

Branch level related issues; Notifying the list of Difficult Centre‘s; Arrangements for establishing Bank

Dispensary in SMS Highway Building The lodging charges for Jaipur Centre

being State Capital as per Major A Centres.

Revision of Medical Charges reimbursement Schedule for Jaipur Centre

Large number of officers who were members of NPS, their PF deduction w.e.f 1.4.2017 not made.

AISBOF WROTE LETTER ON CROSS SELLING TO CHAIRMAN SBI

TEXT OF LETTER IS REPRODUCED HEREUNDER

QUOTE: To, The Chairman, State Bank of India, Corporate Centre, Madame Cama Road, MUMBAI - 400 021. Dear Sir,

CROSS SELLING We take this opportunity to thank you sincerely for expressing honestly your views about the role played by the Public Sector Banks as growth engines of our country. With a hope that our sentiments will appeal to you and will be appreciated in a positive manner, we are writing this letter after lot of thought and with deep feelings – a reflection of sentiments of thousands of officers across the country. We have raised this issue at all levels and finding no success due to reluctance by the top executives even to touch this issue, now, as a last resort we are writing to you sir, with a fond hope that you will look into the deep-rooted infection that ‗cross selling‘ has created in our system, the malaise and its ramifications and the effect on the long term health of our Bank. 2. State Bank of India has a long history of over 200 years, built with trust, business ethics, solid systems and procedures. Such immaculate business standards and dynamics has put our Bank on a high pedestal above most other Banks in the Industry. This is the reason why SBI has created a brand equity for itself and is the most loved, preferred Bank in the country with an aura of invincibility. Therefore our appeal to you seeking your interference. 3. The recent incidents and happenings in the Banking Industry, especially the PNB issue,


the Rotomac issue, the Kingfisher issue etc., have thrown the banking system itself at risk apart from painting the Industry Black, and creating doubts in the minds of people. It is needless to mention that maintaining business ethics will be an uppermost principle that needs to be followed strictly. 4. Cross Selling was introduced to augment conventional business, and to convert Bank Branches into a ‗one stop financial supermarket‘ catering to all-round investment needs of customers. The intention was good. But over a period of time, like the proverbial story of a camel putting its nose into an Arab‘s tent and then its head and neck and body and finally driving the Arab away, the cross selling is driving away our ‗bread and butter‘ – the core business of the Bank. Cross selling, which was once healthy, has now, over a passage of time drifted from its basic objectives and is slowly eating into the core business of the Bank. 5. It is with great pain that we have to tell you that in all the circles the main focus is now on cross selling – only. This is a ground level reality which may not have come to your notice. This has pulled down the performance of many circles in the main business of the Bank. 6. An analysis will show that Circles which once topped the country in terms of Deposits, advances, NPA reduction etc., and with high business, potential have slipped to the bottom? We have personally witnessed that 90% of the P review meetings nowadays cover review of cross selling business done and only 10 to 15% of the time is devoted to NPA recovery, advances etc. Many a times SBI Life Personnel attend P review meetings and direct, and threaten the Branch Managers, many of them very seniors, often insulting them with derogatory remarks and threats of transfers to faraway places. Our own controllers and administrators spend most of the time in ensuring cross selling targets only. It hurts when nobody talks about getting new and quality business, follow-up of NPA‘s etc. Most of the ‗Maha Login‘ days and campaigns, Whatsapp follow-up, MDRT Campaigns etc., are for cross selling. When senior executives retire a bouquet of cross selling is presented to

appease them. All the follow-up from AO‘s nowadays are only to ensure cross selling targets. 7. Many a times, officers are indirectly coerced to do mis-selling which is very disturbing. In order to achieve targets, sometimes the STDR‘s are converted into cross selling products and customers often get confused. Advances, both retail and corporate, are invariably linked to such products in the name of security, and as a precondition. We have come across cases of ‗trickle feeds‘ being run to debit the insurance premium to the customers‘ accounts. Many a times, poor illiterate customers, farmers and even army personnel are not spared due to the unreasonable pressure on operating staff. 8. Needless to mention that such a lure towards insurance and cross selling is because of the huge multi layered incentives, foreign trips felicitations and awards at lavish, glamorous gala parties. 9. It is very visible and evident that such incentivisation is killing the work culture, killing concentration on the thrust areas, plans and priorities of the Bank and acts like arsenic, or slow poison in the long run. When customers feel let down seeing their deposits drain away and melt into insurance or other products they feel cheated and it affects the image of the Bank. The ‗Trust‘ that the Bank has developed over the years should not be dented. 10. And now – how much is this effort worth? From the balance sheet we observe that the income from cross selling during March 2017 was only 0.37% (777 crores) of the total income and 2.19% of the other income. During March 2016 it was only 0.25% (490 Cr) of the total income. An honest cost benefit analysis into the entire gamut of selling such products will show that the ‗opportunity cost‘ or the cost of the alternatives foregone is higher than the benefits. The salaries of the staff involved, their time spent, travelling expenses, cost of lavish parties, the incentives foreign trips, opportunities lost amidst all this has dented Banks own business. NPA‘s are no longer pursued with the vigour it used to be followed up. Search for new customers and quality


advances has come down. The core activity of the Bank has taken a back seat and is now replaced by the lucrative cross selling which is based on individual incentives. The contribution of income from cross selling in terms of percentage to total profits, percentage to other income vis-à-vis the efforts, both monetary and physical is all too obvious. 11. Apart from all of the above, whether such incentivisation stand the test off legal framework and the guidelines of the RBI, the IRDA, the CVC etc., is another issue altogether. We should not forget the case of the collapse of American Banking giant – Wells Forgo, due to the excessive incentivisation of employees. 12. In view of the above, we would like to suggest that a separate centralized vertical for cross selling products be created, who will monitor and take care of selling at retail outlets or Branches. Every large branch can have exclusive staff to deal with this. Let Cross Selling be a part of Banks Business and the practice of incentivizing should be stopped. We are not against cross selling, but only trying to highlight the ill-effects of incentivisation. 13. Cross Selling should be given its right place, but not beyond that where it becomes a ‗good servant but a bad master‘ and eats into the Banks health, like a parasite. Tomorrow cross selling suddenly should not turn out to be another grey area for the Bank and create negative publicity. 14. Sir, we hope that this communication is not misinterpreted and is taken as a positive feedback for improvement, as we are only reflecting and echoing the sentiments of a majority of officers and senior executives of the Bank with all sincerity. We shall be happy if you can convene a meeting where we can discuss and contribute with suggestions to make the Bank stronger amidst growing uncertainty and vulnerable situation in the Banking Industry so as to build confidence amongst our officers who work in an area of business risk, uncertainty and under the hanging Damocles sword of accountability. Thanking you, (Y.SUDARSHAN) GENERAL SECRETARY

(AISBOF CIRCULAR NO.19 DATE: 09.03.2018 TO ALL OUR AFFILIATES/MEMBERS) UNQUOTE

Welcome Change in Banking Sector

All India Bank Officers' Confederation, the largest officers' organization having membership of around 3,25,000 officers welcomes the decision of Reserve Bank of India to discontinue issuance of Letters of Understanding (LoU) by banks for trade credits for imports into India. The decision will prove to be beneficial for the greater interest of our nation and our banks. It is the AIBOC which raised this issue that LoU is nowhere in existence globally and also not being honoured by any bank internationally. Simultaneously, it also a matter of concern to think that why our regulator of Banks has not taken any step earlier to scrap this letter of undertakings. When a Buyer‘s Credit is available for importers why at all RBI introduced Letter of Undertaking which is not in vogue among foreign banks? What was the necessity for RBI to encourage imports by helping the borrower to get cheaper credit abroad instead of helping Indian Banks to increase them credits which would give better taxes for the country?

We also take this opportunity to welcome the statement made by the Chairman of State Bank of India Shri Rajnish Kumar against the privatization of Banks. We also put in record our appreciation for his statement that all bad loans and poor governance standard cases are from private sector where as state-run firms have high governance standards. Thorough this communication, we also condemn the statement of the critics like Shri Uday Kotak, executive Vice-Chairman of Kotak Mahindra Bank, who think that there is no need for the existence of so many public sector banks and also Shri Nandan Nilekani, Chairman of Infosys, advocating for privatisation of Public sector Banks.


Perhaps, they are not aware of the socio- economic agenda of the public sector banks and unlike the private sector banks, the state run banks cater to the needs and demands of the masses along with the government. It is the public sector bank only who plays the major role in the implementation of the all the social schemes announced by the government. Further, most recently as on 13.03.2013, Shri Rajnish Kumar has again opposed the demands for privatization banks in his interview with the electronic media channel NDTV. Shri Kumar categorically stated that the PNB scam involving Nirav Modi was a one-off incident and the hype and the negativity going on in the media nation-wide was not warranted. Here, we also extend our heart-felt gratitude to the Shri Rajnish Kumar for raising his voice against the critics who demand for the privatization of banks.

We also appreciate the decision of SBI Management for slashing the charges related to non-maintenance of Average Monthly Balance in Savings Bank Account. We also understand that these revised charges will benefit more than 25 Crore customers. The charges for non-maintenance of Average Monthly Balance for customers in metro and Urban centres have been reduced from a maximum of Rs. 50 per month to Rs. 15 per month which is a huge respite. We firmly believe that Bank has to focus always keeping the interest of the customers first and this step of slashing the minimum charges is a welcome step. Nevertheless, we also believe that doing away with the concept of minimum balance charges will put our customers in a more comfortable zone. We once again demand before the State Bank management to reduce the minimum balance cap in their Saving Accounts which will go a long way in instilling the confidence and trust of the

public on the banking system.

AIBOC Circular No. 2018/11 Date: 24.03.2018 To All Affiliates/State Units/ Members Dear Comrades,

We reproduce hereunder the full text of Circular No.UFBU/2018/04 dated 22nd March 2018 issued by UFBU on the above subject for information of all concerned.

General Secretary

---------------------------------------------------------------- TEXT

QUOTE:

TO ALL CONSTITUENT UNIONS/MEMBERS

Dear Comrades,

Our Dharna before Parliament demanding action against PNB fraudsters

UFBU’s Meeting with Hon’ble Finance Minister

UFBU’s Meeting with Secretary, DFS, Ministry of Finance

As decided earlier, our programme of Dharna before Parliament was conducted successfully yesterday. The Dharna was held in Parliament Street. Leaders and activists from all the 9 constituent unions participated in the Dharna.

Besides leaders of our Unions, the Dharna was greeted by Com.D. Raja, Member of Parliament from Communist Party of India, Com.Tapan Sen, Member of Parliament from CPI (Marxist) and Com.Premachandran, Member of Parliament from Revolutionary Socialist Party. They assured their total support to our demands.

With the help of Com.D. Raja, UFBU delegation met Mr. Arun Jaitley, Hon‘ble Finance Minister. Com.Tapan Sen was also present with us during


the delegation. During our meeting with Hon‘ble Finance Minister we submitted four memoranda on the current fraud that has taken place in Punjab National Bank, delay in Wage Negotiations, delay in Appointment of Employee/Officer Director(s) and allocation of Staff Welfare Fund to Public Sector Banks. Details are given hereunder:

Meeting with Hon’ble Finance Minister: During our meeting with the Hon‘ble Finance Minister, we explained our concerns about the fraud that has taken place in PNB and the attempts to portray a picture as if the fraud has been committed by some employees and officers while the fact remained that higher level officials are also involved besides the gross negligence on the part of internal Auditors, external Auditors, Reserve Bank of India, Top Management, etc. We demanded tough action on all concerned and immediate steps to bring back Nirav Modi and Mehul Choksy to India and take criminal action against them. Hon‘ble Finance Minister assured that Government is fully seized of the matter and required steps in this direction are being taken.

We also pointed out that the media, and vested interests from FICCI, ASSOCHAM etc. are demanding privatisation of Public Sector Banks as if the fraud has taken place in PNB because it is a Public Sector Bank. Hon‘ble Finance Minister was clear in his response that the fraud has nothing to do with ownership and Government does not have any move to privatise the Public Sector Banks as on date.

Wage Revision: During the meeting we also drew his attention that the wage revision talks are not taking place and IBA has not made even their minimum offer while the Government is frequently reminding the Banks and IBA to expedite the process. We told him that the delay is causing serious resentment amongst the rank and file members. He assured that IBA would be advised in this regard.

Appointment of Employee/Officer Directors: We also informed him that the posts of Employee and Officer Directors are vacant in all

the Banks and for the past three years, no vacancy has been filled up by the Government. He informed us that he would look into the matter and asked us to meet the Secretary, DFS in this regard.

Revised Guidelines on allocation to Staff Welfare Schemes in Banks: We also pointed out to him that as per existing guidelines, Staff Welfare Scheme allocations are made out of Net Profits but in many Banks due to huge provisions for bad loans, there is net loss though all the Banks are earning Operating profit. Hence we requested for revision in guidelines for allocation to staff welfare schemes based on Operating Profits instead of Net Profits. He appreciated our viewpoints and assured to advise the Department to look into the matter.

Meeting with Secretary, DFS: Thereafter, our representatives met Mr Rajeev Kumar, Secretary, Dept. of Financial Services, Ministry of Finance and submitted the copies of our letters to Finance Minister. We also explained all these issues to him in detail. He assured to follow up the matter at his end.

Comrades, we are passing through a challenging time when banking industry is passing through so much of turmoil. At the same time, our charter of demands for wage revision also needs to be expedited. We have to campaign amongst the people to restore their confidence on the Banks. We also have to fight for achieving our demands. Hence we have to move more unitedly and cohesively.

With greetings,

Yours comradely,

CONVENOR UFBU

UNQUOTE


Asset Classification Norms and Provisioning Norms – Should be Rationale and Scientific Lending is a credit risk.. Hence the lender either keeps a higher interest margin or keeps the provision for write off or does both. In the banking system in our country, lending rates are higher for unsecured loans because of this reason. After 1991 when the neo liberal economic policies got implemented, interest rates were reduced for the corporates in a phased manner and correspondingly, the interest rates on deposits also were reduced. The net interest margin started coming down because of the policies of the Government implemented through Reserve Bank of India. This has lead to decline in the profitability of the Public Sector Banks. Prior to 1991, we had Asset Classifications under a health code system where the loans were given a health code from 1 to 8. Even in those days, there were classifications viz. doubtful assets and loss assets. The practice of writing off loans was prevalent even then as certain portion of the loans that were advanced was not paid back by the borrowing entities on owing to various reasons. This did not affect the Banking System much as the loan amounts were small and delinquency was rare. After 1991, Income Recognition and Asset Classification Norms (IRAC) was introduced which classified the assets into four types. The Reserve Bank of India had been changing the norms periodically. From the incurred loss model (actual), we moved over to expected loss model (projection). After the US financial crisis, though Indian Banks were not majorly affected during the financial crisis, we have been forced to switch over to this model by International agencies. These classifications were not based on Indian conditions but based on US Generally Accepted Accounting Principles and International Financial Reporting Standards (US GAAP and IFRS). This model was also recommended by BASEL Committee. Basel norms are recommendatory and not mandatory. Even if we accept them, the implementation can be done in future in a phased manner.

A discussion paper of Reserve Bank of India (2012) stated the reasons for changing the asset classification as follows: 1. The rate of standard asset provisions has not been determined based on any scientific analysis or credit loss history of Indian banks.

2. Banks make floating provisions at their own will without any pre-determined rules and not all banks make floating provisions. It makes inter-bank comparison difficult. 3. This provisioning framework does not have countercyclical or cycle smoothening elements. Though RBI has been following a policy of countercyclical variation or standard asset provisioning rates, the methodology has been largely based on current available data and judgement, rather than on an analysis of credit cycles and loss history. The RBI asked the Banks to switch over to Estimated Loss Model which was not based on Indian conditions and there was no scientific methodology adopted. The Estimated Loss Model has not addressed the above issues scientifically. The Reserve Bank of India had changed the norms for NPA periodically based on ―Past Due‖ as under. w.e.f. 31.03.1993 – 4 quarters w.e.f 31.03.1994 – 3 quarters w.e.f 31.03.2001 – 180 days w.e.f.31.03.2004 – 90 days w.e.f.28.02.2018 – 30 days. The reason for non performing assets has been studied by Manish Kapoor *1 Those Attributable to Borrower : a) Failure to bring in Required capital b) Too ambitious project c) Longer gestation period [*1 Manish Kapoor, DAV College, Amritsar (published in International Journal of Innovations in Engineering Technology, Vol 3, Issue 3, Feb 2014)] d) Unwanted Expenses e) Over trading f) Imbalances of inventories g) Lack of proper planning h) Dependence on single customers I) Lack of expertise j) Improper working Capital Mgmt. k) Mis management


l) Diversion of Funds m) Poor Quality Management n) Heavy borrowings o) Poor Credit Collection

p) Lack of Quality Control Causes Attributable to Banks : a) Wrong selection of borrower b) Poor Credit appraisal c) Unhelpful in supervision d) Tough stand on issues e) Too inflexible attitude

f) Systems overloaded g) Non inspection of Units h) Lack of motivation i) Delay in sanction j) Lack of trained staff

k) Lack of delegation of work l) Sudden credit squeeze by banks

m) Lack of commitment to recovery n) Lack of technical, personnel & zeal to work. Other Causes : a) Lack of Infrastructure

b) Fast changing technology c) Un helpful attitude of Government

d) Changes in consumer preferences e) Increase in material cost due to Government policies f) Government Policies

g) Credit policies

h) Taxation laws

I) Civil commotion j) Political hostility k) Sluggish legal system l) Changes related to Banking amendment Act

So it is very clear that NPA is not only because of willful default. But today the Government and RBI statements indicate that every default is seen as a willful default or a fraud which is not correct. The Parliamentary Standing Committee Report on NPA states the reasons leading to NPAs as given below: Main reasons for increase in NPAs of banks, inter-alia, are sluggishness in the domestic growth during the recent past, slowdown in recovery in the global economy and continuing uncertainty in the global markets leading to lower exports of various products like textiles, engineering goods, leather, gems, external

factors including the ban in mining projects, delay in clearances affecting Power, Iron& Steel Sector, volatility in prices of raw material and the shortage in availability of power have impacted the operations in the Textiles, Iron & Steel, Infrastructure sectors, delay in collection of receivables causing a strain on various Infrastructure projects, aggressive lending by banks in past. *2 Mr. S. Gurumurthy, Charted accountant, Political Analyst and Columnist, in an article in New Indian Express on Nov 06, 2002 wrote this: NPA RULE THAT KILLS BANKS, BUSINESSES AND THE ECONOMY ITSELF NPA. The three letters strike terror in banking and business circles today. NPA is the short form of ‗Non Performing Asst‘. The dreaded NPA rule says simply this: when interest or other due to a bank remains unpaid for more than 180 days, the entire bank loan automatically turns a ‗non-performing asset‘. This arithmetic has made automatic the classification of a loan as performing or non performing. The recovery of loans has always been problem for banks and financial institutions. In the past after factoring different attributes of a loan like who has borrowed, their record, whether the industry is cyclical-they would classify their loans as good, doubtful or bad. How then did the paradigm shift from assessing a debt as doubtful or bad to automatic classification of debts into NPAs? Before getting into details, let‘s look at the anatomy of the NPA issue in India. The first issue is when the Indian economy is not performing, can non performing accounts in banks be avoided? Cannot be. Another point. Many western scholars are coming round to the view that the infamous Washington Consensus, which is the mother of the idea of globalised NPA norms, is a failure. They now say that domestic finance should be based on counter cyclical approach, that is, if the economy is under performing there should be liberal financing to lift the economy. Today‘s NPA policy is precisely the other way round. The second issue is the total amount of NPAs in the Indian financial system. This is estimated at Rs.120000 crores. Break this figure up. Just


three categories of loans account for half this figure. Loans to petroleum sector (Rs.29000 crores), to steel sector (Rs.22000 crores), and to the infamous Enron power project (Rs.9000 crores), Can the banks tell steel and petroleum industries to go to hell? Not if our economy has to survive. These portfolios have to be restructured. Once restructured, they will disappear from the NPA radar. However the money sunk in Enron is gone. Eventually, for all its sins, the government will have to offer this amount as a subvention or as subsidy. Deducting these loans, the resulting balance Rs.60000 crores (over $12 billions) is within 10% of the total commercial credit of banks and financial institutions. This is less than 4% of our GDP.

[*2 Report of the Standing Committee on Finance on NPAs, Feb 2016] Look at Japan and China and other Asian nations in contrast. The total NPA in Japan is estimated at $1.26 trillions, equivalent to about 26% of Japan‘s GDP. In China it is $600 billions, that is, 45% of its GDP; in Malaysia 48% of its GDP; in Thailand 41% of its GDP, in Taiwan 27% of its GDP. Compare this with NPA at 4% of India‘s GDP. Where is the comparison? Yet despite all pressure Japan has steadfastly refused to accept the NPA norms universalised by the west. But surprisingly we have. Universalised NPA, rule is a western strategy to keep global banking and finances under its thumb. It is tailor made to suit equity driven economies, that is, the Western ones. In the US where 55% of the households are linked to the stock market, equity constitutes most of business finance with debt playing only a limited role. In contrast in India less than 2% of household savings is invested in stocks. The result India is debt driven with more than 2/3 of the business funds being provided by debt. It is the other way round in the US driven by high equity and low debt. Where, with such low debt, interest or Principal remains overdue for more than 180 days, the debt may be automatically recorded as non-performing. In contrast in India where debt in business is two times the equity, if the large debt is not serviced

for 180 days, it cannot be automatically labelled as non-performing, without further appraisal. Yet once a borrower is unable to pay interest for more than 180 days his account is to be regarded as non performing and the new rule will deny him further credit, which he needs most then. With banks handling over 60% of national financial savings and the government handling the balance, where else will needy businessmen turn for funds? Thus, starved of funds, businesses, which are only weak, turn sick. Even though the banker knows the problem, he cannot fix it, thanks to the rule. Should any banker breach the rule to solve the problem of his client he is sure to end up in CBI custody. Will any banker risk his job and self if he has to deviate from the rules to save businesses? Never. What then does he do? He does not lend at all. That is why Indian banks are flush with funds and the businesses are starved of them. By the way, how can CBI authority over bank business and globalisation co-exist? Has any advocate of globalisation though about it? Not just on banks. The RBI has forced the NPA rule even on non banking finance institutions. Ask non banking finance companies about their experience. You will hear from them stories after stories as to how there is disconnect between the rule and their business. They will say how their clients like the Malabar lorry operators will tell them ‗sir, for the next one year we will not pay any instalment; we will pay everything at the end of the year‘, and will do so promptly. But even though the finance companies would get their payments at the year end as the lorry operators had assured them, they would have to declare their accounts as NPAs meanwhile, leading to disastrous consequences to finance companies. Indisputably, the NPA rule is unsuitable to banks and business; even harmful, killing both, why, our very economy, all at one stroke. Ask the bank heads in private, and see how critical they are about RBI for enforcing the global NPA standards as a fit-all-model. It will finish the banks and businesses they whisper. So do the finance company promoters who are more efficient than some bankers. Of course all of them only whisper, not talk. Yet everyone, including the media, swears by this suicidal rule


as if it were an inerrant law. Why rules disconnected to India are framed? Simple. Those who frame them are disconnected from India.*3

The same arguments are relevant even today. From 180 days now the NPA classification has been changed to 30 days for no scientific reason. Economy is not doing well. NPA has only increased due to Asset Classification Norms. ARCs, IBC & NCLT have not helped. A look at the status of the first 12 large accounts shows the real picture (Annexure -1) *4 RBI in its financial stability report in December 2014 itself had identified 5 sectors contributing to 54% of total NPAs. They were Infrastructure, Iron & Steel, Textiles, Aviation and Mining (Including coal) *5 The Finance Standing Committee has assessed in detail the reasons for NPAs in different sectors. The major reason for NPA is not willful default but the poor economic growth and hurdles in getting the projects completed in time. Here one has to note that it is the Government which directed Banks to lend to Steel, Power, Telecom, Infrastructure and Aviation as Development Financial Institutions (DFIs) were converted into Commercial Banks and privatized. It is because the Government wanted to reduce the fiscal deficit and reduce its investment in the above sectors and asked banks to lend under Public Private Partnership(PPP) Model. Unfortunately, under the PPP almost the entire investment is received as loan from Public Sector Banks. So the Private investment in PPP is negligible. Today the maximum NPA is in these sectors only. So the Government has to come to their rescue.

*3 New Indian Express, Nov.2002 *4 Economic Times 14th March 2018 *5 Financial Stability Report, RBI, Dec 2016 The Parliament Standing Committee on NPA in its report submitted in Feb 2016, in the 6th recommendation (Total 14 Recommendations) As a way forward, the Committee are of the view that developing and strengthening a vibrant bond market to finance infrastructure projects will be a sound proposition. At present, only banks and such other financial institutions are involved in funding large

projects on a short term lending basis. There is also a huge mis-match between their deposit tenure and credit term. Thus, every time there is even a minor delay in projects, they are declared as NPAs and the banks have to resort to restructuring of the loans. Therefore, the Committee would recommend that the Government should make the necessary structural changes including revival of Development Financial Institutions (DFI) for long-term finance, especially for Infrastructure projects, which will go a long way in nipping the problem of NPAs in the bud. The Committee also urge the Government for allowing Infrastructure Finance Companies (IFCs) to purchase infrastructure projects turning into NPAs and keep them as Standard Assets, as this step would not only provide the much needed relief from stressed portfolio but also create an enabling environment for funding the infrastructure sector facing resource crunch. Besides, the IFCs should also be allowed to participate in equity. The Banks should have equity component built in the loan agreement itself. The Committee desire that the RBI should explore the possibility of developing a mechanism wherein there would be separate norms for NPA classification for infrastructure and non-infrastructure loans By just implementing this one recommendation of the Parliamentary Standing Committee on Finance, the Government can help the Public Sector Banks to reduce their debt burden to a large extent. This will also help the companies involved in infrastructure promotion to survive. By converting these loans into long term debts, these companies will be encouraged to improve the infrastructure over a period of time which will provide a boost to the economy. When the debt of Reliance Defence could be converted into a long term debt to avoid declaring it as NPA why the same can‘t be applied for other loans? In fact international experiences show that countries which are supporting Development Financial Institutions through which long term credit is made available are seeing overall growth in the economy. A cursory look at the Asset Classification and Provisioning norms show that we are using stringent norms which affect the Banks badly. (Annexure -2). So there is adequate scope for changing them. The AQR created havoc on


banks‘ profit & loss accounts as many large lenders slipped into losses due to provisioning of even standard assets. Bad loans in the Indian banking system jumped 79 per cent in FY16, according to RBI data, mainly on account of the AQR. Hence, it is established that the robust rise in NPA in the Indian banking Sector is primarily because of the RBI‘s forceful implementation of AQR. Moreover the Asset Reconstruction Companies have not helped as they pay only 15% of the outstanding loans to the Banks. In 2001, the Gross NPAs of Public Sector Banks was 13.11% and it did not create any crisis whereas 12.5% GNPA now is creating a crisis because of the Provisioning norms. Our recommendations: 1. RBI Circular to be Withdrawn:- Withdraw Cir.No.:RBI/2017-18/131 DBR.No.BP.BC.101/ 21.04.048 / 2017-18 dated 12th Feb 2018 issued by RBI as it is only going to increase the NPA and Provisions. It is estimated that all Public Sector Banks and most of the Private Banks also will make losses due to this revised norms. The net Loss to Banking system will be almost one lakh crores which will lead to a financial crisis which the country can‘t afford now. 2. Asset Classification Norms to be changed:- The Asset Classification Norms cannot be the same for all kind of loans. The security available has to be taken into account. Similarly the accounts which are guaranteed under Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) have to be classified differently. The Housing Loans which are having the mortgage of house property as security should not be classified as NPA in full. Many Housing Loans also have Insurance Cover. If at all a portion has to be classified as non-performing, it should be only the amount in default and not the whole outstanding. With the advent of De-monetization imbroglio and GST intricacies, SME borrowers (inclusive of Transport Operators) face the crisis of working capital flow in the market, raising the invoices challan and realization of receivables.

Among other measures to revive their activities, the NPA recognition for Loans & Advances extended to SME borrowers e.g. retail Trade / Whole Sale, Small Business, Services, SSI & Ancillary Unit upto the limit of Rs.5 crs should be 180 days instead of 90 days at present after the loan is identified as SMA. Since, no streamlined infrastructural facilities is available from the Govt Agencies in respect of forward & backward linkages, Loans extended to the Social & Downtrodden sector in order to implement the strategies and objectives of the Central Govt/ State Govt, (PMMY, Start Up Entrepreneurs, Alternative or Renewable Energy Sector, SC/ST and Women Entrepreneur), suffers from generation of income very often, and remains un-organised to cope up with the volatile economic situation. In order to recycle the Bank‘s fund, the NPA recognition norms should be 365 days instead of 90 days norms after the loan account becomes sub standard. Provision for Standard Assets should be kept in abeyance. Asset classification norms for different loans followed in different countries is given as Annexure 3-5. The details prove that in our country there is a need to change the present norms. 3. Restructuring of Loans should not be stopped:- Restructuring is an accepted international practice. RBI report *6 of the Working Group to review the existing prudential guidelines on restructuring of advances by Banks / Financial Institutions has come out with 23 recommendations on restructuring. Instead of implementing these recommendations the RBI is now trying to put an end to restructuring for loans above Rs.2000 Crores and referring them to NCLT which will be destroying the industries which need restructuring and also destroy the Banks which have lent based on the policies of the Government and RBI. The RBI has also withdrawn the restructuring schemes for new NPAs. This is dangerous. Both the Industry as well as the Banks will be affected. What we


need is a relook on the restructuring and strengthening the system. 4. Provisioning Norms need change:- The Provisioning Norms followed in different countries is given as annexure 1 & provisioning norms in our country is given as Annexure 2. Our Provisioning Norms are drastic and not scientific. Because of the Provisioning Norms, though the Operating Profit of Public Sector

*6 Report of the working Group on Restructuring RBI, 2012. Banks including SBI and IDBI was Rs.1,58,982 crores as on March 2017, the total NPA Provisions was 1,63,939 crores. (See Annexure 6) which lead to a net loss. Provisioning for Housing Loans cannot be same as that of an overdraft. Similarly the provisioning for the loans covered under CGMTSE should be different than that of other loans. The Provisioning Norms may also differ industry wise. For example: Infrastructure Industry and a medium enterprise cannot be treated at par. There has to be a scientific analysis of the provisioning norms. Asking the Banks to provide 50% on the outstanding in the first year itself for accounts transferred to National Company Law Tribunal (NCLT)is totally irrational. Again the Banks have been asked to provide another 50% in the second year. How can one imagine that there will be no recovery in these Corporate advances which are huge. Most of these concerns are running units and they have huge assets including land and building. The provisioning can be maximum 15% in the first year based on a fair assessment value. The provisioning for the cases referred to NCLT has a scope of revival of the unit / takeover of the unit /closure of the unit. In each case the scope for recovery differs. Accordingly the provisions have to be made differently looking into the assets available, scope for revival of the unit and the security realizable based on the market value. The NCLT is not in a position to settle the cases within 180 days / 270 days due to various reasons including court cases. Hence the burden should not be thrust upon Banks by creating inappropriate provisions.

5. Implement recommendations of the Parliamentary Standing Committee: It is more than 2 years since the Parliamentary Standing Committee submitted its recommendations. They were supposed to have been implemented within a year. Neither the Government nor the RBI has taken any steps to implement the recommendations. We appeal to the Govt and RBI to implement the recommendations at the earliest. 6. Reorient the Banking Policies:- It is high time to review the Banking policies implemented in the last 27 years and reorient them towards the upliftment of the masses of the country and give fillip to agriculture, horticulture, animal husbandry, fishery, food processing, cottage and village industries, small and micro enterprises, small and medium enterprises which will create employment and reduce the non performing assets. There should be ceiling on lending to corporates and they should move to the market for mobilisization of funds through bonds or shares. That will also add to scrutiny and supervision. 7. No tax on NPA Provision:- The Government should also consider waiver of tax on NPA provisions. The tax should be on Net Profit and not Gross Profit. 8. Defer implementation of IND- As:- Public sector banks would need to divert an estimated Rs 63,000 crore to meet increased provisioning requirements for loans under the new Ind-AS accounting standard and this would knock down their growth aspirations and hurt market share. Ind AS (as commonly known in India), is essentially bringing in the global standards on accounting to India. Corporate entities have already started implementing Ind AS from April 1, 2016, in a phased manner, whereas banks and NBFCs will start implementing it from April 1, 2018. Adoption of Ind AS is expected to significantly enhance comparability of the financial statements of Indian banks with their global peers whereas the banking infrastructure in India, the customer base, the loan profile are totally different from that of the global counterparts of Indian Banks. The biggest


impact of Ind AS comes from Ind AS 109 (equivalent of IFRS 9), an accounting standard on Financial Instruments, which impacts almost all line-items of banks‘ balance sheets. Ind AS 109 will lead to early recognition and higher provisions for loans and off-balance sheet exposures using expected credit loss (ECL) model, thereby also impacting capital requirements of the banks. Here, the million dollar question is how much our Banks are ready to embrace Ind AS 109 at this moment. The Indian Banks have to upgrade their policies, IT systems and most importantly their capital. Without taking these factors into consideration, abrupt implementation of Ind AS will only bring further woes for the Indian banks by increasing their NPAs more. Hence as extended to LIC, Banks also should be permitted to defer the norms for atleast 2 years. 9. Learn from the Experience of Foreign Banks quitting India:- It is also very important to see the trend of Foreign Banks‘ operations in India. India has ceased to be a priority for multinational foreign banks since the financial crisis, as high capital and regulatory requirements in India have forced them to retreat into their domestic markets to save on costs and protect profitability. Now, let us have a look at some statistics. In the last five years, Deutsche Bank has sold its credit card business, Barclays has shut its retail banking business; Swiss lender UBS has given up its banking licence and so did US-based multinationals Morgan Stanley and Goldman Sachs; Bank of America-Merrill Lynch sold its wealth management business to Julius Baer and Dutch banking group ING sold its Indian operations to Kotak Mahindra Bank. The exodus continued in 2015 with British bank RBS, which shut 23 of its 31 branches in India. Again, Standard Chartered reduced by a quarter its staff in corporate and investment banking. HSBC, too, announced that it will shut down its private banking business. These foreign banks have been closing down their business in India owing to high capital and regulatory requirements in India; but the domestic banks do not have any option. At one end, we have to continuously endure the onslaught of the RBI and Govt and on the other hand, we are duty bound to serve the masses of the nation. Hence there is an

urgent need to change the Asset Classification and provisioning norms as well as Capital Adequacy norms. 10. Provide Interest on CRR:- Another important aspect is CRR. The amount that banks set aside as CRR, does not fetch them any interest. Hence they have to bear the negative spread on such deposits. Over the past few years, the RBI has been using liquidity as a key instrument of monetary policy. By increasing the CRR (at times on temporary basis) from time to time, the additional burden is imposed on the banks. At a time, when the Public Sector Banks are going through a tough phase, mainly because of the onslaught of Govt, the RBI should reconsider its view on CRR. 11. Reimburse Expenditure on Govt Schemes:- Lastly, the public sector banks are used by the government as tools for implementing the government schemes or social welfare schemes. Right from opening Jan Dhan Accounts, implementing Demonetization to the enrollment of aadhar, everything is being taken care of by the public sector banks on behalf of the government. It is unfortunate that the government does not reimburse a single penny to the banks which have been incurred by them as part of the implementation expenditure of the government schemes. Moreover, if the performance of the banks have declined in the last few years, then the government is solely responsible for this because these banks have been used all these days to look after the implementation of government schemes and restoring the Indian Economy after the abrupt declaration of demonetization. The RBI and the government should seriously consider the plight of the public sector banks and bring in solution to revive them instead of deteriorating them further. 12. Stop Cross Selling by Banks: Banks are spending too much of their manpower on Cross Selling of Insurance Policies and Mutual Funds. This leads to mis selling due to incentives provided. Let Banks concentrate on lending.


13. Create Confidence in Bankers to give fresh credit: Today Banks are scared of giving Credit. In 2017 the credit growth was only 2.4%. Many sectors show negative growth. (Annexure 7) 14. Reorient Credit to bring overall growth Agriculture needs better growth with focus on small and marginal farmers. Food Processing can create huge employment but only 5.5% of Industry advances have gone to them. Infrastructure needs more attention. Their share in Industry has gone down to 19.85% (Annexure – 8) In a country which is developing RBI & Govt have a role to give directions to the growth path. General Secretary, All India Bank Officers‘ Confederation (AIBOC) & Secretary General, All India Public Sector And Central Govt Officers Confederation(AIPCOC)

AIBOC Condemns Statement of Shri Urjit Patel, Governor, RBI

All India Bank Officers' Confederation, the largest officers' organization having membership of around 3,25,000 officers vehemently opposes the statement of the RBI Governor that ―RBI‘s regulatory powers over PSBs are weaker than over private sector Banks‖. He also remarked that RBI is not having the power to remove directors and management, supersede a PSB‘s board, force mergers, trigger liquidation or withhold a banking license from a PSB which is possible in the case of private banks, thus making an indirect case for privatisation or reducing the role of stateowned lenders.

The statement of the Governor is nothing but trying to run away from its role failure as a regulator rather than accepting the accountability. The statement of the governor is far from truth and trying to misguide the common people of this country.

The RBI Governor finds it more comfortable to shift the burden of regulatory failure under the pretext of a nexus in between the lenders and the corrupt borrowers while citing the example of recent PNB fiasco. The head of the apex bank placed a feeble argument blaming the public sector banks for not adhering to its guidelines while completely ignoring that mere issuance of guidelines is not enough in a robust economy like India but regulators responsibility entails far more vigilant control over the function of the commercial Banks in order to be effective.

Why he remained silent on the role of its own directors on the boards of the Banks?

Why no accountability is fixed for remaining silent on boards?

RBI is empowered to intervene into the functioning of PSB under section 35A of Banking Regulation Act which states that the RBI has powers to issue direction, which if it is satisfied that in the public interest or in the interest of the Banking policy or to prevent the affairs of the banking company detrimental to the interest of the depositors or in a manner prejudicial to the interest of the banking company or to secure the proper management of any banking company generally and the banking company shall comply with such directions. Under Section 36AA, 36AC the RBI is further empowered to remove or appoint directors / the CEO of a banking company. The power of such regulation is vested in the RBI by virtue of the Banking Regulations Act, 1949 and the Reserve Bank of India Act, 1934. The Banking Regulations Act, 1949 was enacted to ensure that the banking system was strong enough to help economic change and pursuant to this gives the RBI the power to supervise the operations of the commercial banks in India. The RBI can issue directions to banks and they must comply with the same. The RBI is empowered to control the operations of the commercial banks in that no commercial bank can provide its services without first obtaining a licence from the


RBI. Such licence is required even for the purpose of opening branches. Any licence granted may be withdrawn where it is found that the bank is being managed improperly. In order to ensure the smooth conduct of an investigation into any such mismanagement, the RBI is empowered to inspect any commercial bank and its books and accounts through one or more of its officers. Where any defects are found the banks are expected to rectify them and the RBI may appoint Addition Directors to the Board of Directors in order to oversee such rectification. Further, the approval of the RBI is required for the appointment, reappointment or termination of the appointment of the Chairman or Managing Director of any bank. Most importantly, the RBI is vested with the power of Selective Credit Control i.e., it can control the advances given by the commercial banks. Pursuant to this power, the RBI can determine the policy in relation to advances that is to be followed by all banks or by any specific bank. The RBI may issue directions as to the purpose of advance, margins to be maintained in respect of the secured advances, rates of interest and any other terms and conditions in relation to the advances. In addition to exercising the power of Selective Control of Credit, the RBI also controls the volume of credit quantitatively so as to influence and keep in check the total volume of bank credit. The RBI performs this function through the utilisation of certain instruments. These instruments are the Bank Rate, Open Market Operations and Variable Cash Reserve Requirements. The lack of supervision of RBI is also due to steady reduction in no of employees and officers in RBI. In the last few years the no of staff has come down to 50%. The RBI Governor should take steps to augment the staff strength so that there is adequate supervision.

Why the position of director in the board of RBI is kept vacant for long? We need better banking, better reporting, better supervision and better technology in aid of these. What we need is to ignore the cry to privatise PSBs, as if ownership uniquely

determines ethics and efficiency. The popular chestnut is that PSB are structurally vulnerable to poor governance, resulting in the runup in NPAs. Data, yet again, militate against the hypothesis. While there might be cases of fraudulent behaviour, they are not the overwhelming cause for the accretion of NPAs in PSB. Second, cases of governance breakdowns are not a monopoly of PSB — globally and in India, many privately-owned banks have been regularly identified with such errors of omission and commissions. Global regulatory fines on banks run into many billions of dollars every year.

The Economic Survey 201617 studied the causes of the large NPA buildup in PSB. A very large part of it can be attributed to a growth induced credit bubble, followed by macroeconomic and regulatory issues that burst the bubble rudely. Corruption and malfeasance were not identified as a key variable.

In 2008, a raft of European and American banks, all privately owned, had to be bailed out by governments. The list of institutions bailed out included some of the best known brands in the business. The financial crisis of 2007-08 was the result not of public sector sloth and corruption but of private sector greed and poor regulation. Lehman Brothers went belly up, without any state ownership. Royal Bank of Scotland and Barclays avoided collapse by taking government equity. It is not ownership but the quality of regulation, reporting and management that determine banking efficiency. Closer home, privately owned Global Trust Bank and Bank of Rajasthan had to be rescued with state support. The reason for the above is quite simple — banking isn‘t the same as soaps, or steel, or hotels. In India, the political economy circumscribes the quality of regulation and internal control policies at banks. It is important to appreciate this while fixing responsibility for the bad loans and large frauds at public sector banks. The All India Bank Officers` Confederation


demands immediate implementation of the recommendations of the Parliamentary Standing Committee (Finance) on NPAs and also to appoint officer Directors and Employee Directors in the boards of the Banks which are mandated by law. General Secretary

AISBOF CIRCULAR NO. CIRCULAR NO.20 DATE: 09.03.2018 TO ALL OUR AFFILIATES/MEMBERS: We have today sent a communication to the Management on the above subject. A copy is enclosed. We note to keep our members advised of further developments in due course. With greetings, (Y.SUDARSHAN) GENERAL SECRETARY To, The Deputy Managing Director & CDO, State Bank of India, Corporate Centre, Madame Cama Road, MUMBAI - 400 021. Dear Sir,

MEDIUM AND LARGE CORPORATE

ADVANCES RECENT HAPPENINGS AT THE INDUSTRY

NEED TO BUILD CONFIDENCE OF OUR OFFICERS

We have all been a witness to the recent scams in the Industry concerning large corporate advances. Suddenly the CBI, the RBI, the CVC, the Government and the press wake up and create a ruckus, denting the image of Public Sector Banks and raising innumerable questions on their functioning, systems and procedures.

2. In State Bank of India, we have time tested systems and procedures which are amongst the best in the World. However, Banking theory and practice are slightly at variance from each other. In practice there is always an element of flexibility and in order to garner and retain business, our officer‘s take decisions which tantamount to small deviations. Many a times they receive oral instructions from Superiors. Due to sensitivity and with a fear of embarrassing their superiors, the junior officers/executives do not take written confirmation of the same. 3. There are innumerable occasions when they indulge in a ‗fair Banking Risk‘ within reasonable limits, and in the best interests of the Bank and to ensure that the unit is running and healthy. But in the event of the account going bad, hundreds of questions are raised and the most legitimate and bonafide decisions fall into questionable areas. 4. We are happy that our Bank has always protected bonafide decisions and has caused no harm to an officer in terms of career or punishment. But the same cannot be said of outside agencies like the CVO, the CVC or the CBI or the Police. 5. Now in the light of the recent scams and fraud, the outside agencies will tighten their monitoring mechanism not just for future, but for back dated proposals as well, and put hapless officers under the lens of scrutiny, arrests and harassment etc. 6. The above measures will create fear amongst the officers as, even the slightest slip from instructions book or the SOP can land them into the police/CBI/CVC/CVO net. 7. But it is also an incredible fact that if the instructions book is followed verbatim the scope for advances get restricted, which will hit the banks business and growth. If the Bank has to grow we have to lend. At the same time the officers cannot afford to stick their necks out to the enforcement agencies. We are in a dicey situation and the need of the hour is to instill confidence in our officers.


8. Therefore in view of the above, we suggest that - a. There is need to take up the issue at the highest level – with the Ministry of Finance, the CBI, the CVC and with enforcement agencies to ensure that bonafide actions are protected and does not lead to harassment. b. There is a need to form a committee to study the rules which are out dated or which need to be modified in a manner that is implementable. There are many obsolete instructions and therefore in the changing environment, changing customer needs, there is a need to issue revised guidelines which are practicable and implementable. c. There is a need to find out if an account has gone bad because of a ‗policy‘? Many a time the policy, the circumstances and the environment in the market/economy, like lack of demand, overall sluggishness etc., may lead to an account turning into a NPA. Therefore in our internal investigation also there is primary need to look into - (i) What Went Wrong? (ii) How it went Wrong? (iii) Why it went Wrong? and then decide on WHO is responsible? In practice all investigation officers pin down on who is responsible rather than finding out the loopholes in the systems, procedures, circumstances, and policy issues. Therefore there is a need to have an honest relook into the ‗Investigation Procedures‘ and the ‗accountability policy‘ so that our officers can work in a free and fair atmosphere without fear. d. There is a need to ensure that all instructions from superiors are in ‗writing‘ and not ‗oral‘. It is also to be ensured that undue pressure to grant a particular loan is not exerted on officers down the line. e. Under a committee approach, the accountability aspect has to be shared and not just passed on to implementing officers down the line. f. Under BPR, we find that there is no ownership. Accountability is scattered as there is a division of labour. Therefore the onus or ownership of an advance is not there. Also the

outsourcing of KYC verification etc., has led to dilution and shifting of the responsibility. g. There is again, a need to take out incentives from cross selling. Many advances are linked to insurance and other products leading to dilution in quality of the advance. Apart from the above, the focus of the controllers and officers gets shifted from monitoring the quality of advances and NPA follow-up to ensuring that cross selling targets are achieved. h. Unnecessary filing of FIR for all cases and very small amounts as a matter of routine leads to arrests of all officers and undue harassment at the hands of police. Closing a case is not easy. Therefore there is need to review this policy if needed by taking up with RBI etc. i. The system of fraud reporting, identifying etc., need to be reviewed. j. There is a need to take up with the ministry and the CVC to simplify the Disciplinary procedure and to ensure that punishments are simple and not disproportionate. The system of sealed cover procedure needs to be reviewed as it is faulty in its present form. Many punishments have an implied multiple impact leading to a double punishment without the knowledge of the Disciplinary authority. Also at the implementation level lot of misinterpretations lead to wrong implementation and higher penalties. 9. Under circumstances we request that a detailed study of new situation prevailing in the Industry be made on a priority basis and the entire gamut of the obsolete rules, instructions and disciplinary area be revised. We shall be glad to lend a helping hand through progressive suggestions. Thanking you, Yours sincerely,

GENERAL SECRETARY


It is Provisioning Norms of RBI which is

leading to a Banking Crisis. Time to Wake Up.

The Banking Sector is moving towards a crisis

due to changes brought in the Asset

Classification and Provisioning Norms which

RBI keeps on changing. The Research Wing of

AIBOC has the following recommendations to

save the Banking Sector.

1. RBI Circular to be Withdrawn:-

The Circular No.:RBI/2017-18/131

DBR.No.BP.BC.101/ 21.04.048 / 2017-18

dated 12th Feb 2018 issued by RBI is only

going to increase the NPA and

Provisions. It is estimated that all Public

Sector Banks and most of the Private

Banks also make losses due to this

revised norms, which will lead to a

financial crisis which the country can‘t

afford now.

Net loss is expected to exceed One Lakh

cr. Because of this norms which are

unscientific.

2. Asset Classification Norms to be

changed:-

In 2001, the Gross NPAs of Public Sector

Banks was 13.11% and which did not create

any crisis, whereas 12.5% GNPA now is

creating a crisis because of the Provisioning

Norms.

Provision for Standard Assets should be

kept in abeyance. From 90 days , suddenly

30 day norm has been brought in which will

have a drastic impact.

The Asset Classification Norms should take

the security available into account. The

accounts guaranteed under (CGTMSE) have

to be classified differently. The Housing

Loans with mortgage of house property, the

NPA should be only the amount in default

and not the whole outstanding.

SME borrowers (inclusive of Transport

Operators) faces the crisis of working capital

flow in the market due to the advent of GST

and Demonetization. The NPA recognition

for Loans & Advances extended to SME

borrowers upto the limit of Rs.5 crs should

be 180 days instead of 90 days as at present

after the loan is identified as SMA.

Loans extended to the Social &

Downtrodden sector, in order to implement

the strategies and objectives of the Central

Govt/ State Govt, (PMMY, Start Up

Entrepreneurs, Alternative or Renewable

Energy Sector, SC/ST and Women

Entrepreneur), suffers from generation of

income very often, and remains un-

organised to cope up with the volatile

economic situation. In order to recycle the

Bank‘s fund, the NPA recognition norms

should be 365 days instead of 90 days

norms.

Asset classification norms followed in

different countries is given as Annexure 5-7.

The details prove that in our country there is

a need to change the present norms.

3. Restructuring of Loans should not be

stopped:-

The RBI instead of implementing the

recommendations of the Working Group

recommendations on restructuring,it is now

trying to put an end to restructuring for

loans above Rs.2000 Crores and referring

them to NCLT which will be destroying the

industries and also destroy the Banks which

have lent based on the policies of the

Government and RBI. The RBI has also

withdrawn the restructuring schemes for

new NPA which would affect both the

Industry as well as the Banks.


4. Provisioning Norms need change:-

The Provisioning Norms followed in

different countries is given as Annexure

1 and provisioning norms in our country

is given as Annexure 2. Due to this the

Operating Profit of Public Sector Banks

including SBI and IDBI was Rs.1,58,982

crores as on March 2017, whereas the

total NPA Provisions was 1,63,939

crores. (See Annexure 3).

Provisioning for Housing Loans cannot

be same as that of an overdraft.

Similarly the provisioning for the

loans covered under CGMTSE

should be different than that of other

loans.

Infrastructure Industry and a

medium enterprise cannot be treated

at par.

To provide 50% on the outstanding

in the first year itself for accounts

transferred to National Company

Law Tribunal (NCLT)is totally

irrational.

Banks have been asked to provide

another 50% in the second year as if,

there will be no recovery in these

Corporate advances. Most of these

concerns are running units and they

have huge assets including land and

building. The provisioning can be

maximum 15% in the first year based

on a fair assessment value.

5. Implement recommendations of the

Parliamentary Standing Committee: It

is more than 2 years since the

Parliamentary Standing Committee

submitted its recommendations which

were supposed to have been

implemented within a year. We appeal

to the Government and RBI to

implement the recommendations at the

earliest. The Parliament Standing

Committee on NPA in its report

submitted in Feb 2016, in the 6th

recommendation (Total 14

Recommendations) stated as;

Salient Features of the

recommendations are ;

developing and strengthening a vibrant bond

market to finance infrastructure projects

as only banks and such other financial

institutions are involved in funding large

projects and there is huge mis-match between

their deposit tenure and credit term.

the Government should make the necessary

structural changes including revival of

Development Financial Institutions (DFI) for

long-term finance.

the Committee also urges the Government for

allowing Infrastructure Finance Companies

(IFCs) to purchase infrastructure projects

turning into NPAs and keep them as

Standard Assets.

the Committee desire that there should be

separate norms for NPA classification for

infrastructure and non-infrastructure loans

By implementing these recommendations of the

Parliamentary Standing Committee on Finance,

the Government can help the Public Sector

Banks to reduce their debt burden to a large

extent.

This will also help the companies involved in

infrastructure promotion to survive and will be

encouraged to improve the infrastructure.

International experiences show that countries

which support Development Financial

Institutions are seeing overall growth in the

economy.

The Asset Classification and Provisioning

norms affect the Banks badly. (Annexure -2).

The AQR created havoc on banks‘ profit & loss

accounts as many large lenders slipped into

losses due to provisioning of even standard

assets and bad loans which jumped by 80 per

cent in FY16, according to RBI data. Hence, it is

established that the rise in NPA in the Indian


banking Sector is primarily because of the RBI‘s

forceful implementation of AQR.

6. Reorient the Banking Policies:-Review

the Banking policies implemented in the

last 27 years and reorient them towards

the upliftment of the masses of the

country and to give fillip to priority

sector such as agriculture, cottage and

village industries, small and micro

enterprises, which will create

employment. There should be ceiling on

lending to corporates and they should

move to the market for mobilisization of

funds through bonds or shares. That

will also add to scrutiny and

supervision.

7. No tax on NPA Provision:- The

Government should also consider

waiver of tax on NPA provisions.

8. Defer implementation of IND-As:-Ind

AS (as commonly known in India), is

essentially bringing in the global

standards on accounting to India.

Corporate entities have already started

implementing Ind AS from April 1,

2016, in a phased manner, whereas

banks and NBFCs will start

implementing it from April 1, 2018.

Adoption of Ind AS is expected to

significantly enhance comparability

of the financial statements of Indian

banks with their global

peers whereas the banking

infrastructure in India, the customer

base, the loan profile are totally

different from that of the global

counterparts.

The biggest impact of Ind AS comes

from Ind AS 109 (equivalent of IFRS

9), an accounting standard on

Financial Instruments, which

impacts almost all line-items of

banks‘ balance sheets.

Ind AS 109 will lead to early

recognition and higher provisions

for loans and off-balance sheet

exposures using expected credit loss

(ECL) model, thereby also impacting

capital requirements of the banks.

The Indian Banks have to upgrade

their policies, IT systems and most

importantly their capital for

implementation of Ind AS,

otherwise it will only bring further

woes for the Indian banks by

increasing their NPAs more.

Hence as extended to LIC, Banks

also should be permitted to defer the

norms for atleast 2 years.

9. Learn from the Experience of Foreign

Banks quitting India:-

India has ceased to be a priority for

multinational foreign banks, as high

capital and regulatory requirements in

India have forced them to retreat in the

last five years,

Deutsche Bank has sold its credit

card business, Barclays has shut

its retail banking business, swiss

lender UBS has given up its

banking licence and so did US-

based multinationals Morgan

Stanley and Goldman Sachs;

Bank of America-Merrill Lynch

sold its wealth management

business to Julius Baer and Dutch

banking group ING sold its

Indian operations to Kotak

Mahindra Bank.

The British bank RBS, which shut

23 of its 31 branches in India and

Standard Chartered reduced by a

quarter its staff in corporate and

investment banking.

HSBC, too, announced that it will

shut down its private banking

business. Hence there is an

urgent need to change the Asset

Classification and provisioning


norms as well as Capital

Adequacy norms.

10. Provide Interest on CRR:-

Another important aspect is CRR. The

amount that banks set aside as CRR,

does not fetch them any interest. The RBI

has been using liquidity as a key

instrument of monetary policy. By

increasing the CRR (at times on

temporary basis) from time to time, the

additional burden is imposed on the

banks, the RBI should reconsider its

view on CRR.

11. Reimburse Expenditure on Govt

Schemes:-Lastly, the public sector banks

are used by the government as tools for

implementing the government schemes

or social welfare schemes. Opening Jan

Dhan Accounts, implementing

Demonetization, enrollment of aadhar

etc.,It is unfortunate that the

government does not reimburse the cost

incurred by them. The RBI and

Government should seriously consider

these points to revise the public sector

banks.

General Secretary

UFBU Leaders Meet Finance Minister and Secretary, Banking United Forum of Bank Unions organised a Dharna at Parliament Street today which was a dharna of leaders of UFBU representing 9 Trade Unions in Banking Sector across the country. The UFBU delegation consisting of Com. Sanjeev Bandlish, Com. C.H. Venkatachalam, Com. D.T. Franco, and 6 more Unions/ Associations, accompanied by Members of Parliament Com. D. Raja and Com. Tapan Sen met the Finance Minister and discussed issued affecting the Banking Sector.. They

representedto the Finance Minister to come out openly against privatisation and provide all support to Public Sector Banks by strengthening the system. They also demanded that action should be taken against those who are responsible for the frauds and Junior officers alone should not be made scapegoats. They also demanded immediate appointment of Officer and Employee Director . None of the Public Sector Banks have these representatives in the Boards of the Bank which is mandatory as per law. In another representation they demanded providing welfare measures for Bank employees based on operating profit and not net profit. The representatives also asked the Finance Minister to direct Indian Banks Association to complete the wage negotiations quickly and continue the practise of wage negotiation settlement upto scale VII. The representatives also mentioned to the Finance Minister that the Asset Classification Norms and the provisioning norms changed by the Reserve Bank of India wide their circular dated 12th February 2018 is going to create havoc in the Banking Industry. They mentioned that the change in norms of declaring loans which are not serviced for 30 days as substandard and also referring loans which are not serviced for 180 days to NCLT leads to huge provision which are not scientific and will create a dent on the banking system as a whole. The Finance Minister assured that there will not be any privatisation of public sector banks. He also stated that ownership of the Banks is not the problem but supervision is the problem. He agreed to take action on issues represented. The delegation also met Mr. Rajeev Kumar, Secretary, Department of Financial Services and discussed all the issues with him. He has assured quick action from the Government on all the matters represented.

Published on behalf of State Bank of India Officer’s Association, Jaipur Circle

by Ramavtar Sigh Jakhar – President and Vinay Kumar Bhalla-General Secretary e-mail: [email protected]

website: www.sbioajaipur.org

mailto:[email protected]

Documents

BANK-O-VOICE - SBIOA JAIPUR o voice April 2018.pdf · the long term health of our Bank. 2. State Bank of India has a long history of over 200 years, built with trust, business ethics,