Warrier's Blog,June 16-30, 2018 : Highlights

WARRIER’S BLOG, JUNE 16-30, 2018 : Diagnosis and Cure

Diagnosis and cure

This refers to your editorial “From bad to worse” (Business Standard, June 28) calling for market-based solutions for NPA crisis. This is a timely caution to wake up all stakeholders from slumber induced by the reassurances from the owner of PSBs (GOI) that depositors’ interests are safe in banks. Having said that, the possible scare in the public mind emanating from the analyses of data on banks’ stressed assets and NPAs, magnified by the ‘flashes’ about scams should not get blown up out of proportion. Such a situation can adversely affect the already impaired health of the financial system.
Here, a couple of observations made by former RBI Governor Dr Y V Reddy in a recent speech in Kolhapur are relevant. I quote:
“…The Non Performing Assets in 1996-97  were 17.8 percent of gross advances and 9.2 percent of Net Advances. These ratios are much higher than what is prevailing today at 11.7 percent and 6.9 percent in 2016-17.  They were brought down to 9.4 percent and 4.5 percent in 2002-03, still higher than in 2015-16…. There were weak banks, and some public sector banks needed a capital injection.  These issues were addressed quietly, gradually and systematically.  As a result, the NPAs were down to 2.0 percent and 0.9 percent in 2008-09…”
“…Bank deposits continue to be as safe as they have ever been, as far as private sector banks are concerned.  They have adequate capital.
 The public sector banks do not have adequate capital to take care of the depositors' interest, but since the majority ownership is that of the government, the deposits are safe.  These are not limited liability companies, but institutions established under the law.  However, the depositors are protected with the tax-payers money. …”
As the health of PSBs remained neglected and these institutions were mulched dry for different purposes the recent efforts by RBI to use modern diagnostic tools and ‘surgical treatment’ have brought several uncomfortable realities to the fore. These should be seen as positive signs leading to the infusion of professionalism in the conduct of banking business in India.
M G Warrier, Mumbai


Revamp Air India

This refers to the report “Air India unveils revamp plan after privatization setback” (Business Line, June 23). Air India is facing problems similar to the challenges now being faced by Public Sector Banks in India. Let's not count the similarities in challenges. The Indian mindset of procrastinating problems and transferring ownership when things go wrong need to change. This is the residual from the management strategy the British taught the then bureaucracy (read Indian Civil Services) to push up or push down, and now sideways (!) tough issues needing unpopular decisions, to evade responsibility.
Air India’s problems are genetic in certain respects and emanating from mismanagement if one looks from a pure business angle. At least at this late hour, GOI may consider a comprehensive revamp of Air India with ‘Indianization’ and infusing professionalism in management as primary objectives.
For achieving the above objectives GOI may consider appointing a High Power Committee comprising the present and Ex-Maharajas of Indian Industry and allied sectors and experts from relevant fields (like Tata, Murty of Infosys, Metro Sreedharan, Dr Raghuram Rajan, Ambani brothers, CMs of Andhra Pradesh, Dr Parikkar and representatives from NITI Ayog...List illustrative), to study the problems faced by Air India and recommend solutions.
As India needs Air India, the sale of majority stakes should not be an option. External investment should be welcomed. India has adequate resources and talent necessary for making a quick revival of Air India possible. The committee will have to make recommendations on handling the present assets and liabilities of Air India, finding additional resources, all aspects of management issues and chalk out a plan to make the organization break even in a reasonable period.
M G Warrier, Mumbai
Capitalizing resources

This refers to the report “Govt Weighs Roping in LIC to Capitalize IDBI Bank” (ET, June 25). Hit and run approach to reforms by consecutive governments since early 1990’s has by now made the institutions in the Indian Financial Sector look vulnerable and fragile. This is despite the country having enough internal resources, an enviable pool of talent at higher levels in every walk of life and fairly stable government in charge on an ongoing basis.
In addition to the accounted monetary resources with individuals and organizations across public and private sectors, India has hidden wealth in gold jewelry and other valuables owned by public and private organizations including religious bodies pending mainstreaming. Time is ripe to build a national consensus on mapping India’s wealth, mainstreaming at least a portion of the ‘hidden treasures’ and redeploying them for nation’s welfare.
Emerging consensus

This refers to the letter captioned “Morale booster” from V Jayaraman, Chennai (Business Standard, June 20) which inter alia seeks a reassurance from RBI that bank deposits are safe. There is no denying that Indian Financial Sector is going through a rejuvenation process which has brought to surface several weaknesses that existed for long but did not attract public attention. The plea for a reassurance from RBI about the safety of moneys with the banking system shows that public still trusts the banking regulator.
Three reports in today’s newspapers, while giving some relief to the bank depositors, seek speedier and coordinated action from lawmakers and regulators including RBI and SEBI.
One, Finance Minister Piyush Goyal ’s assertion that “the Government stands behind public sector banks and public money (deposits) is extremely safe in PSBs”. He also indicated that GOI and RBI will be in conversation about any more powers needed by RBI to regulate/supervise PSBs.
Two, in an interview given to The Hindu ( June 20), the vice-chairman of NITI Aayog Rajiv Kumar recognized the need for an in-depth diagnosis and careful and sustained handling of the problems of PSBs which has shown up as rising NPAs in recent times. He is of the view that further diagnosis can be done keeping in view the P J Nayak Committee findings.
Three, the root cause of NPAs being the unhealthy fund management by corporates, there is urgent need to discipline bank borrowers. The casual observation by the finance minister that while he was ‘sure about the safety of bank deposits he didn’t know how safe it (deposits) in certain private companies that have huge tax dues’ and the Business Standard report “Probe into 80,000 shell firms runs into PAN hurdle” filed by Veena Mani (June 20) need to be read together as both hint at the uncomfortable state of affairs in the private sector.
M G Warrier, Thiruvananthapuram


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