This is in continuation of our blog post No. 760 (Part 6/100 of Indian Economic Enigmas). . Merger of 27 Indian Public Sector Banks into 6 large Banks will only create chaos. Their efficiency will not improve. Here is a Deccan Chronicle.Com News Report which indicates that Centre is likely to ahead with merger of 27 Indian Public Sector Banks in 6 large Banks, as recommended by Shri Vinod Roy, a Former CAG (Comptroller and Auditor General of India). Click here to go to DC & Read the Report.. It appears that State Bank of India, India's and the World's largest Bank in terms of number of Branches, has already started the process of merging into itself its six Associate Banks-- State Bank of Hyderabad, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala, and State Bank of Bikaneer and Jaipur.
In Telugu language, there is a proverb: "picci kudirindi, rOkali talaku cuTTanDi". Approx. English equivalent: "my idiocy (or lunacy, insanity) has been cured. Pl. roll this pezzle around my head". Here, the cured patient is asking his listener to bend the wooden pezzle used for pounding flour and grains in Indian Homes, and roll it around his head like a "head gear". Here, one question arises: picci kudirindA? picci mudirindA? Has the madness been cured? Or has the madness aggravated? This comment, which I am making, may appear to be rude.
Yet, with due respect to the Learned Former CAG who is said to have made some drastic recommendations for cleansing Indian Public Sector Banks, I am tempted to quote another Telugu proverb: "Dabbulu oka cOTa pArEsukoni inkO cOTa vetukkunnaTlu". Approx. English gist: Like a person who has lost money at one place, and who was searching for the lost money at another place. When an onlooker asked the money-loser, why he was searching at that particular place for the lost money, he replied: "Here, there are electric street lights. Where there are lights, we have to search".
Public Sector Banks lost their money, owing to their corruption, inefficiency and recklessness. In spite of that, they may be successful in recouping a part of the lost-monies, if the Legal System, Administrative System (both Central and respective State Governments) help them with earnestness and sincerity. The major drawback, both of the Judicial Systems and Administrative Systems involved in handling Huge Banks dues is: Both of them treat the Public Sector Banks and the Private Sector Banks equally.
The Judicial System treats Public Sector Banks just as ordinary litigants, and on par with private money lenders. Our Government Administrators both in Centre and States, view Public Sector Banks as "miltch cows" when it comes to new loans, and as "intruders and trespasers" when it comes to help the PSBs in Recoveries. Consequently, Public Sector Banks, with regard to the problem of recovery of their bad debts, have become orphans and endless sufferers like "raped women".
This particular blog post will not be spatially sufficient to discuss all the problems involved. First we shall see some of the problems which are said to be, at present, receiving the attention of the Central Government.
"...Stronger banks should decide which of their bad loans to shift off their balance sheets, while weaker banks need fresh capital before a round of consolidation that would cut the number of state banks to no more than six from 27 now. In the current budget, the government has put in about Rs 25,000 crores, but it has not said that this is the end. "
"...Consolidation has already begun with State Bank of India’s move to absorb five subsidiaries and Bharatiya Mahila Bank, a bank for women set up in 2013. ..."
"...More mergers are expected. But no timeframes. Well-performing larger banks could tie up with one another ..."
"... Troubled lenders could be taken over once recapitalised — if they offered good value to suitors. Specifically, Bank of India — the country’s third-largest state bank by assets — would not be considered a merger candidate until it was recapitalised. "
"...State banks trading at just 0.5 times book value, valuations were attractive for minority shareholders to subscribe to planned rights issues, alongside the government. ..."
"... India’s state banks have been reluctant to write down loans, especially to high-profile borrowers like liquor tycoon Vijay Mallya. ... Talks were well advanced on creating a separate mechanism to review such cases and expedite balance sheet cleanups. ..."
"... This mechanism could be a committee, involve an existing joint lenders’ forum, or new guidelines from the RBI ...".
"...No plans to create a “bad bank” to relieve lenders of dud loans. ..."
"...India has more than a dozen asset reconstruction companies, or ARCs, with state banks owning stakes in four. The government has let promoters take full control of ARCs and scrapped caps on foreign direct investment. ..."
"... There is sufficient financial interest to invest in the ARCs. But all are waiting to see whether the PSBs are willing to transfer their stressed assets. "
ybrao-a-donkey's humble comments. वैबीराव एक गधे के विनम्र राय . వైబీరావ్ గాడిద వినమ్ర వాణి. You have every right to differ with me. I respect your right. आपको मेरे मत से भिन्न राय रखने के संपूर्ण हक है। मै उस अधिकार को परिपूर्ण रूप से गौरव देता हुँ. మీకు, మీ భిన్నమైన అభిప్రాయాన్ని కలిగిఉండే సంపూర్ణ హక్కు ఉంది. దానిని ఎంతో నేను గౌరవిస్తాను. However, pl. examine this donkey's views also. परन्तु एस गधे के दृष्टिकोण को भी अनुशीलन कीजिये. కానీ ఈ గాడిద దృష్టికోణాన్ని కూడ ఓర చూపుతో కంటజూడుమీ, క్రీగంట జూడమీ.
Nothing significant can be achieved with the above measures. Merging Banks will only create numerous problems, including resistance from Employee Trade Unions.
Depending upon Public Sector Bank Overdues workload in each State, at least one new High Court Judge should be appointed to exclusively deal with Public Sector Bank Suits for Recoveries, and Criminal cases for prosecution of cheating borrowers and Bank Executives.
At Supreme Court, there should be at least 10 Judges, to exclusively handle Public Sector Bank Suits for Recoveries, and Criminal cases for prosecution of cheating borrowers and Bank Executives.
Govt. of India should first make necessary Statutes (laws) / ordinances / Constitutional amendments to increase the number of Supreme Court and High Court Judges to exclusively handle PSB cases and suits. If necessary, Special Sessions of Lok Sabha and Rajya Sabha should be held for the purpose. Then, GOI should issue necessary Notifications for executing the Legislations.
Government of India should then pray the Supreme Court Collegium to take up appointments of all the required Judges. When Supreme Court Collegium suggests names, GOI should unconditionally accept the appointments and speed up the whole process.
For each Public Sector Bank, Govt. of India should get a list of DEFAULTERS ACCOUNTING FOR TOP 50% IN TERMS OF AMOUNTS. Govt. of India should then establish a SIT (Special Investigation Team) for each Bank, consisting of Top Lawyers, full-time Special Top Police Officials, full-time Special- Central Govt. Officers, full-time Special- State Govt. Officers, for monitoring the dues. The SITs should have special office in the concerned Public Sector Bank. Case by case reviews should be done everyday.
Wherever, assets are available and can be sold without intervention of courts, they should be sold through Public Auctions without delay. Minimum bid prices should be kept low. Under no circumstances, auctions should not be cancelled repeatedly. Unless there are reasons to suspect foul play, irrespective of whether full market value is realised or not, bids should be accepted, and the amounts realised should be credited to loan accounts with no further delay.
Normally, Public Sector Banks take personal guarantees and personal assets of principal promoters and Directors, in addition to the assets of the Company. Wherever such personal assets and guarantees are available, they are to be enforced immediately. Wherever such personal assets / guarantees have not been obtained as security, the Bank's directors and Top Bank Officials should be held accountable. Where there is gross negligence, or connivance of the Bank Directors and Officials with the Borrowing Company promoters, all of them should be arrested immediately, after booking necessary cases.
Passports of all the defaulting business persons, industrialists, their collaborating bank directors and top officials , should be impounded PROVISIONALLY. Red Alerts are to be sent to Airports, principal Railway Stations, Sea Ports, as an additional precaution.
In case of Court cases, "attachments before judgement" should be obtained not only against the defaulting Company's assets, but also against the personal assets of the Promoters, depending on whether personal guarantee is available or not.
Doing all these things on a war-footing, will send shiverings into the bodies of willful defaulters, and their collaborating Bank Directors and Officials. These campaigns will also work as deterrents against new business and industrial loans becoming bad.
Asset Reconstruction Companies will be useless paper-tigers. They can be closed.
The problem with bourgeoisie parties at Centre is, they want to please the defaulting business persons and industrialists at all costs and by all means. How can the bourgeoisie political parties and leaders act tough against their own benefactors, patrons and fund-givers?
Incomplete. Subject to thorough future revision depending upon availability of evidence.