July 20, 2009
Long Live Nationalization!!
Long live Nationalization, Bid Adieu Market forces.
B. Yerram Raju
A senior banker from a public sector bank in India tells me that he receives daily at least two brochures announcing seminars on Risk Management. Whenever he meets any top banker or a global businessman they parry questions on the status of assets of the firm (bank) in the wake of write-offs of agriculture loans announced by the Government of India in the year 2008-09 Budget totaling to over Rs.70000crores and in the wake of instructions of RBI to reschedule the corporate and SME loans that border on failure on account of fall in exports and domestic demand due to the global turmoil consequent on sub-prime crisis in the US. He was skeptical of the Risk Management processes. He says, it is best done by the sixth sense. Harvard, Wharton and Stanford Professors and their students who occupied top positions in Banking and Insurance Sectors in the US and Europe, running Mutual Funds, Hedge Funds, and Pension Funds with lot of fanfare – all aiding financial engineering have become either victims of the crisis or bird watchers. BIS aided by Credit Rating Agencies created standards for the financial institutions to follow on the premise that the world is one and that the standards should be uniform. Many excepting the US believed and started efforts to fall in line. India which embraced technology and risk management practices late joined the band wagon.
Out of more than 60000 bank branches in India, more than a fourth of which are in rural and remote areas with just one or two officers manning the branch, many are yet to grapple with moving their mousse. Still the pass word is treated as word that could be passed on when the original operator leaves the seat of work. Visiting cards of many of the senior officials of public sector banks in particular also do not contain either the URL of the Bank they serve or the e-mail addresses. Nationalized Banks, despite the proclaimed independence in their functioning are treated as instruments in the hands of the Government – not just the Central Government – but the States too that do not have any share in the capital of those banks – announce one scheme or other to be implemented by those banks. Populism still overweighs the economic rationale. Banks are obliged to fall in line. Loans for minorities, community-based assets, public distribution schemes irrespective of their being part of the Annual Banking Action Plans of the Districts are expected to be financed. When the Banking reforms were initiated in 1993, on the basis of Narasimham Committee Report, prudential norms were introduced; Balance sheets cleaned up; Government pumped in money into many banks to make up for what we today can call toxic assets; social banking norms were reviewed; priority sectors were redefined; market entry permitted; universal banking accepted; mutual funds, pension funds etc got under their arm. All were grilled to learn that it is the banks’ bottom line that mattered and the Capital has to be preserved. Uneconomic branches opened in the initial euphoria of nationalization were closed one after the other. Small farmer became too small to look at for the banks; tiny and small entrepreneurs were sought to be replaced with medium entrepreneurs; benchmarks of performance that were linked with priority sector credit dispensation for two and half decades from 1969 shifted to green balance sheet preparations. Fully aware that the Government-owned banks would care less for Corporate Governance – after all 51 percent is owned by the Government – Banks were grilled on Corporate Governance and all put down their declarations sacred in their Annual Reports. It is like the proverbial Indian Mother-in-law who tells her daughter-in-law on the first day of her wedlock: ‘you enjoy full freedom in the house. But you will do well to do as I say’. Banks may decide how much to pay for their CEOs; but the Government should agree for it. After all it is the owner. The Babus (read the IAS) make sure that the Bank CEOs do not draw more than what they draw in the government. Even for Business trips abroad, approval from their Government Boss is required!! Of course, for hiring employees fortunately, they have been de-bonded.
Now as we step into the forty first year of Bank Nationalization, with a broad smile on our faces we watch the world embracing nationalization in the wake of increase in toxic assets and bank failures. Banks are lining up to mobilize capital from the market because almost all of them have shown high profits, notwithstanding the global meltdown. All said, thanks to the meltdown again, banks could postpone their bad and doubtful debts in corporate and SME sectors by another two years. When they surface in 2011-12, hopefully they turn good with full repayment from their otherwise non-obliging clients. Risk Management? Who cares? After all, we are engaged in risk business. The risk will take care of itself. We have a GM or VP dealing in Risk Management and the whole technology around them. One Managing Director of a public sector bank tells me that enterprise risk management is for enterprises and not for them!! Lo and behold. We have a strong regulator and all would be well with us. But how many Bank Boards have Directors with understanding of Risk Management of various hues? This is a question affecting that is bothering the world today. India should not be an exception. In this forty-first year of nationalization of banks in our country, our concerns require a new drive. It is widely held at this point of time that government accountability holds the key to future governance of banks – more when they are nationalized.
-----------------------------------------------------------------------------------------------------------*The Author is an Economist and Regional Director, PRMIA, Hyderabad with about three decades of experience as Senior Executive with the SBI.
Posted by rajubehara at 11:39 AM
| Comments (0)
