Author
Raghu Mohan is an award-winning senior journalist with 22 years of experience. He has worked for BW Businessworld since December 2006, and is currently its Deputy Editor. His area of expertise is banking – commercial, investment, and the regulatory. Previous stints include those at The Financial Express and Business India.
It’s aptly said that big things happen to those who dream big. YES Bank is finally on its way to be one of the ‘world’s best quality banks’
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HDFC Bank has always been ahead of its peers. One reason is its early ‘digital’ move and the other being attention to customer needs
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Arundhati Bhattacharya of State Bank of India on NPAs, loans to large corporates, retail penetration and the brand, among other things
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THE ‘Milk-To-Money ATM’ system generates payment instructions for farmers by the amount and quality of milk deposited in the machine
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Scheme Uday envisages reduced interest burden, less leakage of power and improved efficiency of discoms. But at what cost?
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What’s will be of interest is how Mint Road views the poor transmission of past rate cuts. In its September review, Mint Road had obliged with a repo rate cut of 50 basis points (bps) to 6.75 per cent -- a four-and-half-year low.
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If the 7th Pay Commission’s recommendations are implemented as they are, this would go up to 2.2 per cent of the GDP
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To protest at North Block during Parliament’s Winter Session, writes Raghu Mohan By the end of this fiscal, bank unions would have fine-tuned their strategy to take on North Block and its high priest, Arun Jaitely, on what they consider to be “no-go zones”. The first flash point -- the privatisation of IDBI Bank -- is well upon us; it’s also a forerunner of what’s in store. Did you know that IDBI Bank staffers held nation-wide protests the week gone by? The bank has about 30,000 plus staffers, but over a lakh from other banks – state-run and private banks – joined in to show solidarity. It was not captured in the media as it was held after office hours and did not affect banking transactions. IDBI Bank staffers (each one of them) are now to write to Jaitley that what’s being sought to be done to the bank is unfair. Silly, you might say. Okay, get this now. Bang during the Winter Session of Parliament, a demonstration is to be held before North Block (the unions are working on a suitable date!). After that, it’s anybody’s guess how it’s going to escalate; and you anyway have an alphabetic soup of unions to deal with. Says S Nagarajan, general secretary of the All India Bank Officers’ Association (AIBOA): “In the larger interest of the industrial development of the nation, the All India IDBI Officers’ Association (AIIDBIOA) and All India Industrial Development Bank Employees’ Association (AIIDBEA) under the banner of United Forum of IDBI Officers and Employees have embarked upon organisational forms of action to ventilate our categorical opposition over the contemplated move of the Government of India to privatise IDBI bank by dilution of its share-holding to below 51 per cent”. It will lead to the inter-twined -- mergers of state-run banks, transfer of Centre’s stake to a Bank Investment Company (BIC), and bank-wise wage settlements. Simply put, from here on, it’s only a matter of time before the powder keg explodes. You can brace for a series of strikes, and long weekends! But before we proceed, let’s get this clear -- there is no way on earth that the Centre can continue to hold 51 per cent stake in state-run banks or what is called in bureaucratese as “public sector banks”. Even without the additional capital pressures due to Basel-III capital norms (which kick in from fiscal 2019), the Centre would have found it difficult to retain its 51 per cent stake in state-run banks given the state of the fisc and the competing demand for funds. Not Just A Blast From The Past…Bank unions contend the move to privatise IDBI Bank – cut the Centre’s stake in it to under 51 per cent – is in violation of the assurance given during the debates on the IDBI (Transfer of Undertaking and Repeal) Bill (2002) in the Lok Sabha on 4th December 2003; it was passed four days later. In the Rajya Sabha (15th December 2003), then finance minister, Jaswant Singh, said: “When IDBI converts into a bank after the approval of Parliament today, it will immediately become subject to banking regulation… and there it is mandatory. Unless that is amended, how can IDBI shareholding be reduced below 51 per cent? You have another matter of detail the unions highlight. IDBI Ltd was set up in 1964 as a development finance institution, but functioned as a department of the Reserve Bank of India (RBI) till 1976; after that it became an undertaking of the Centre (public sector). When it reversed merged into its offspring IDBI Bank (just like ICICI Ltd did into ICICI Bank in December 2001), Mint Road classified it as “other public sector banks” – a brand new category. Banks under this category (there is only IDBI Bank under it as on date) were to receive the same benefits under Section 10(23D) of the Income Tax Act (1961) as was made clear in the Explanatory Circular for Finance (No 2) Act (2009) dated 3rd June 2010. The unions’ stress all this to prove that what applies to other public sector banks (or state-run banks) holds true for IDBI Bank also. Why then the rush to dilute stake to under 51 per cent in IDBI Bank even as the Centre says it will not do so in other banks owned by it? It Is Potent TooIDBI Bank is a test case for all major issues in banking, especially in state-run banks. The call for mergers among these banks, and, in particular, the move on the part of a few of them to offer stock-options will only make matters worse. Bank unions see this as an attempt to dilute their bargaining power. Mergers and new-age banking based on technology will lead to large scale redundancies as it will call for a different kind of staffing; stock-options will render collective bargaining (in which the unions play a key role) to the dustbin of history. Let’s take mergers first. We are sometime away from mergers between state-run banks, but you can get a sense of what’s set to unfold. The new generation, Kotak Mahindra Bank (KMB; set up in 2003) had no union problem, but ever since it took over ING Vysya Bank last year, it’s reared its head. That’s because ING Vysya (an old private sector bank) had one; they have now migrated to KMB. Worse, for the first time after the new private banking licensing policy of 1993, unionisation is all over the place in these banks. On 17th August 2015, AIBOA -- the second largest union of bank officers' -- launched the Private Sector Bank Officer' Forum (PSBOF) in Bengaluru. “The growing concern of the existing workforce is hovering round a host of issues like contractualisation of permanent jobs, compulsory conversion of Scale-III officers under the C2C (cost-to-company) concept, outsourcing of banking functions, discrimination in performance-linked bonuses, and non-recruitment of staff against permanent vacancies”, says S Nagarajan, general secretary-AIBOA; he also looks after PSBOF. It’s reached proportions you could not have imagined. AIBOA has taken up the cause of some two dozen employees at Antwerp Diamond Bank’s operations in India – basically Mumbai. This follows its takeover last September by the Brussels-based KBC Group when it said it would wind down its loan portfolio and activities across the world. KBC decided to do so after it failed to sell ADB to the Shanghai-based Yinren Group. "Given that the sale of ADB to the Yinren Group could not be successfully completed, KBC has decided, in implementation of the agreement made with the European Commission, to run down the loan portfolio and activities of ADB in a gradual and orderly manner," ADB told the world in a release in September 2014. You may say the unions managed to ensure that ADB (read KBC Group) did not down shutters in India by end-December 2014 as threatened happened because its local management had no stomach for a fight with our bank unions. But when was the last time you heard of a union picking up cudgels on behalf of a small European bank, boutique at that? It can only get worse when state-run banks merge when issues more complex than in the case of KMB-ING Vysya Bank merger crop up. Now on to the question of compensation. The State Bank of India’s (SBI) move in July 2015 to seek the Centre’s nod to offer three per cent of its profits to its staffers will be the death knell for the four-decade old Bilateral Wage Settlements. Wages and terms of service in state-run banks have been based on uniformity from the days of The First Bipartite Wage Settlement (October 1966). This “collective bargaining” between unions and the Indian Banks’ Association (IBA) -- a club of predominantly state-run banks – has led to the comical: these bankers fix wages and then crib about poor pay. Now bank unions may say that the Bilateral Wage Settlement is fair; does not discriminate between staffers of different state-run banks, but the truth is all these banks are not of the same standard nor are their financials. Rather uniform wages have acted as a drain on several of the weaker state-run banks. In February 2015, the United Forum of Bank Unions (UBFU) wailed that “IBA is not giving any cognisance to the difficulties that are faced by the employees on account of high rate of inflation, which has eroded the salaries of the employees to a great extent and the wage increases considered in other similar public sector undertakings despite their low profits”. Yet when SBI made public what it intends to do this July, the very same unions had a different, but rather ingenious take -- that all state-run banks should also do the same, but with IBA in the middle of it! Of course, you may reason that union power is on the wane and point to the fact that bank managements did not move a muscle earlier this year when UBFU gave a call for a four-day bank strike (from the 25th to 28th February 2015); or threatened an indefinite strike from 16th March onwards. All that will change in the days ahead. You also get to see strange bedfellows. Bank unions are being strategically sought to be used by private sector banks to recover non-performing assets – the more noise they make, the better for these banks; the bulk of this mess is after all in state-run banks. “This is a nonsensical attitude”, says Vishwas Utagi, general secretary-All India Bank Employees Federation (AIBEA). His point is state-run banks account for 76 per cent of all banking assets, so naturally, they will have more NPAs in absolute terms. “The private sector or India Inc as the media calls it, borrows from state-run banks, takes them for a ride, and now private banks bosses want to use unions to scare them. Wonderful! We also have a government that chastises state-run banks for NPAs, but not private borrowers, yet wants to privatise state-run banks. You think all this is very clever?” asks Utagi. The proposed protest before North Block during the upcoming Winter session of Parliament may see other comers join in. Recall that a week after Jaitley inaugurated a seminar in Mumbai in August on agrarian distress, there came a strike call from a clutch of banks which were set up to service rural India. Nearly 1.25 lakh employees and officers of 56 Regional Rural Banks (RRBs) spread over 20,000 bank branches want to stop their privatisation; they have threatened a two-day strike during the Monsoon Session of Parliament. There was a test-run strike on 30th June 2015 by the United Forum of RRB Unions. Connect the dots -- bank unions are going to play hard ball.
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RBI circular on non-promoter directors in `defaulter’ firms to be challenged, writes Raghu MohanExecutive directors (ED), managing directors and chairmen at state-run banks may well find life turning difficult. A raft of enquiries made by the Central Bureau of Investigation (CBI) into dodgy credit decisions at these banks have emboldened unions who are set to move court to bring the top personnel at these banks under “codified service rules". On the anvil is also a legal challenge to Reserve Bank of India (RBI) on its decision to exclude non-promoter directors from the list of wilful defaulters “except in the rarest of the rare” cases. As of now, unlike bank staffers up to the level of chief general managers who come under departmental rules, the top three in a state-run bank face no such scrutiny. It is partially explained by the fact that when someone is posted to the level of ED and above, he or she becomes an employee of the Government of India; until then, you are an employee of the bank you work for. “You may be enquired for acts of omission or commission under the IPC, by the Central Bureau of Investigation (even after retirement), but from within the bank, there are no checks and balances once you are posted as ED or higher”, explains Vishwas Utagi, general secretary-All India Bank Employees Federation (AIBEA). The issue has now come under sharp relief because of the feeling that junior officers at state-run banks are being harassed for acts done by their seniors who may have since moved up to ED and higher positions at other such banks (and who may have since retired). That junior officers (CGMs and below) and the bank are now left holding the can. Do You Believe This?The P J Nayak Report Committee to Review Governance of Boards of Banks in India (13th May 2014) refers to a working paper: `Are the Monitors Over-Monitored? Evidence from Corruption, Vigilance, and Lending in Indian Banks' (A. Banerjee, S. Cole and E. Duflo, per, Harvard Business School; 2007). It argues lending decisions of loan officers of state-run banks are impacted by fear of prosecution for corruption. The analysis is based on a standard event methodology to assess the impact of actions taken by the Central Vigilance Commission (CVC) on lending. It encompasses all commercial banks in India and covers the period between 1981 and 2003. What are the conclusions? Overall lending reduces dramatically in the branches that face CVC action; there is also a contagion effect as lending in branches located in close proximity to the affected branch also goes down; unlike many other transitory 'shocks', the impact of CVC action on lending is persistent; it takes slightly more than two years from the time of CVC action for lending to recover; and the impact of the consequent loan officer conservatism is predominantly felt by small borrowers, who are traditionally considered by banks as opaque and risky.For details click hereWhose Line Is It Anyway? A vast majority of the non-performing assets (NPAs) in the system and those referred to the Corporate Debt Restructuring Cell (CDR) did not become what they became overnight, but have festered around. Take the case of Kingfisher Airlines’ Rs 7,000-crore plus debt (it varies on who you seek out to know the truth!) -- the writing on the wall has been around for four years now, but till date save for United Bank of India (United Bank), not a single bank has moved to nail it as a wilful defaulter. Now it’s a different matter that the Calcutta High Court had observed that United Bank’s empowered committee which decides on who is a “wilful defaulter” had four members instead of three as per RBI norms. But that should not have stopped United Bank (they could have reconstituted the said Committee) or other banks’ (whose Committees were in compliance with Mint Road’s norms) from pressing ahead with their legal options. We now get to the legal challenge from the unions on RBI’s decision to exclude directors from the list of wilful defaulters. The directive (of 1st July 2014 and updated up to 7th January 2015) which came as an amendment to the central bank's master circular on wilful defaulters had said: “In view of the limited role of non-promoter and non-whole time directors (nominee and independent directors) in the management of a company's debt contracts, their names shall now be excluded from the list of wilful defaulters, except in the rarest circumstances which also have been specified in the master circular”. Mint Road had pointed to Section 2(60) of the Companies Act (2013) which defines an officer who is in default to mean only the following categories of directors: · Whole-time director· Where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;· Every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings and who has not objected to the same, or where such contravention had taken place with his consent or connivance. “Therefore, except in very rare cases, a non-whole time director should not be considered as a wilful defaulter unless it is conclusively established that (i) he was aware of the fact of wilful default by the borrower by virtue of any proceedings recorded in the Minutes of the Board or a Committee of the Board and has not recorded his objection to the same in the Minutes, or (ii) the wilful default had taken place with his consent or connivance”. The unions’ contend that given the state of the dud-loan problem, all concerned on the board must be put under scrutiny, “more so as some wax eloquent on corporate governance”. The quality of deliberations at state-run banks is an eye-opener. The P J Nayak Committee to Review Governance of Boards of Banks in India (13th May 2014) noted a detailed scrutiny of board notes suggests that state-run banks’ boards focus inadequately on discussing long-term strategy. “The focus is more tactical and less strategic, such as the location of branches and ATMs. Moreover, the deliberations are driven from the vantage-point of compliance rather than business economics. There is generally weak evidence of the monitoring of measurable disaggregated business goals in relation to targets” In one bank, the taxi-fare reimbursement policy got the same coverage as its NPA recovery policy! Other non-strategic issues discussed include purchase of office premises at Bhopal and provision of leased residential accommodation to officers in six locations (their inclusion in board deliberation - absent in private sector banks - probably reflecting vigilance enforcement concerns). Other non-strategic issues discussed include the details of a lecture by a bank's boss at a college; and extensive coverage of the Finance Minister's visit to the bank! And given the pile of dud-loans, there should be extensive coverage of the Finance Minister's visit to these banks!!
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Raghu Mohan says IDBI Bank should have opted to play it safe, but chased growthYet another bank strike is on the cards – this time over the proposed privatisation of IDBI Bank. At the heart of the issue is that IDBI Bank was made “all things to all comers” over the course of its life and the attendant mess is now sought to be cleared up through privatisation.But let it also be said here is that it should come as no surprise -- whatever the unions may say now -- that IDBI Bank has landed where it has. For no less than K C Chakrabarty as deputy governor of the Reserve Bank of India (RBI) had warned the bank that it should get its act together. And the occasion: a seminar on `IDBI’s role as Development Financial Institution’ organised by the United Forum of IDBI Officers & Employees (Kolkata, 27 September 2013)!The Trigger For The HeartburnSays S Nagarajan, general secretary of the All India Bank Officers’ Association (AIBOA): “If we state that IDBI Bank has been utilised to experiment all sorts of expressions at different points of time by the owners at the centre, it is not on excessive expressions. The result is burgeoning bad loans in the books of the bank at this point of time”.The bank’s net non-performing assets (NPA) stood at 2.88 per cent at end-March 2015 (2.48 per cent). But look at the movement in NPAs. In absolute terms, the opening balance of NPAs stood at Rs 9,960.16 crore (6,449.98 crore) at the start of the fiscal, additions during the year were Rs 6,100.81 crore (Rs 5,706.01 crore), reductions during the year were Rs 3,376 crore (Rs 2,195.83 crore) and the closing balance was Rs 12,684.97 crore (Rs 9,960.16 crore). The Timeline· IDBI was set up by the Govt of India as a “developmental financial institution”. Later, it become a RBI subsidiary· In April 2005, IDBI’s private bank arm, IDBI Bank was reverse-merged with the parent; the Centre holding 51 per cent in the merged entity· In October 2006, IDBI Bank took over United Western Bank LtdIn its Annual Report for 2014-15, IDBI Bank claims “focused and account-specific resolution strategies were implemented and progress was monitored regularly in all NPA cases. Thrust was also given to upgradation of NPAs to performing assets”.What the unions now say is that there are three entities in the belly of IDBI Bank – IDBI (a subsidiary of RBI), IDBI Bank (a new private bank); and United Western Bank (an old private bank). That all these avatars were the result of the initiatives of the authorities and there is now talk of privatising it as it is the fashion of the day. Or simply put, IDBI never got a chance to chart its own course.“In the event of non-responsiveness of the Government, AIBOA shall roll out a plan of actions to halt the moves along with the operating trade unions in IDBI Bank”, says Nagarajan.The Writing Was On The WallNow flashback to what Chakrabarty had said in Kolkata on 27th September 2013). He quoted former RBI governor Bimal Jalan: “The move towards universal banking would not provide a panacea for the endemic weaknesses of a DFI or its liquidity and solvency problems and, or operational difficulties arising from under-capitalisation, NPAs, and asset liabilities mismatches etc. The overriding consideration should be the objectives and strategic interests of the financial institution concerned in the context of meeting the varied needs of customers, subject to normal prudential norms applicable to banks”.The above flies in the face of what the unions now contend; and the point is whatever be the merits or otherwise of what the bank was put through in the past, it is the present that matters.On his part. Chakrabarty had this to say on the responsibility of unions. “You must appreciate the new operating environment that exists today and must realise that in this highly competitive market, no longer would the corporate chase you. For most of your members who have cut their teeth in an era when IDBI was a DFI with limited competition and a small universe of customers to deal with, the transition to commercial banking might be difficult, but remember, if you wish to survive as an institution in this new avatar, you must be willing to change. What is, in fact, needed is a change in mindset and you, as responsible union, have to oversee a smooth transition among the employees”.Did anybody listen then? Is anybody listening now?
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