Showing posts with label SBI. Show all posts
Showing posts with label SBI. Show all posts

Friday, July 28, 2023

SBI The Old and The New

 I have the pride and honour of serving for 28 years, the State Bank of India, till February 1994 and as a pensioner for the last 29 years. I see vast difference in the way the Bank deals with its customers from then to now – both internal and external. It has one of the biggest balance sheets among its peers as on 31st March 2023 and with very low NPAs. There is speed of service for those who help themselves. SBI celebrates 75 years of independence, Azadi ka Amritotsav with a unique gesture of giving a pension bonus for those who are above 75years according to the cadre at which they retired. We, the old-SBI-ites thus had a pleasant surprise in that it still could remember that generation despite the generational divide and technology disruption.

On the 8th June, 2023 we heard the news that its Chief Financial Officer, Attar resigned from the Bank. In fact, his appointment raised several eyebrows couple of years back, because he came from a consulting experience with Ernst & Young and banking experience with its rival ICICI Bank. Conflict of interest is not ruled out. This is a governance issue. 

For those who visit the Personal Banking branch, one stares at long ques. Technology of which we are all proud of, looks a harrowing experience for the staff. The staff, despite all good intentions feel helpless many a time because the system just does not respond.

The SBI I worked at was ‘the largest bank for the smallest man’. There were concept branches dedicated to Agricultural and SSI sectors. It’s primacy in these two areas and domain expertise whittled away with not many field level managers and staff having no time to visit the villages and enterprises. They do not have much time to discuss with them their problems. Most problems are left for the system to resolve.

The SBI today is SBI plus seven Associate Banks merged with it assimilating seven work cultures. Both are thus entirely different. I am reminded of a Chairman who said a few years ago: “We are a technology company. Banking also we do.” Very true. There are more retail loans, personal loans, vehicle loans, more housing and real estate, and corporate loans. Property and Collateral verifications take more time than client interactions. There is little time for the small segment, who need most the banking services. ‘Its old slogan:” the biggest bank for the smallest man” is consigned to history. Anything small, except where it is a regulatory responsibility, is not to their taste.

Now SBI does little of banking as all the staff and managers look to the machines for instructions. If the machine fails to respond, the employee or manager has no answer for the banking problem that the customer faces. If one wants to post a grievance on the system, there is a drop-down menu. If you can’t click one of them, in ‘others’ you have to post in just 100 letters. The CACHE appears and you copy it. It disappears directing you to re-input. There is also a cultural transformation.

If a pensioner wants to see the Chief General Manager, he has to seek appointment through a letter either by mail or email. Earlier, pensioner could telephone and seek his time and meet him. Both the SBIs are different on several counts.

Earlier, there used to be Customer Committees meeting on the 15th of every month. They have become things of the past for the last five years.  

I gave an auto-debit instruction for my Electricity Bills. For fifteen years, it worked well. During the last three months the compliance is whimsical. It pays one bill and the other bill of the second meter is not paid. I had to pay a penalty on that count Rs.150 in the next bill!! If I want to change the auto debit instruction, branch does not have a mechanism to do it nor does it appear in the Standing Instruction menu of my internet account. Branch Manager, after spending lot of time and contacting even the system administrator could not resolve it.

SBI Pensioners’ Monthly Bulletin, Hyderabad has a banner line calling the pensioners for securing their ID cards both for the family and self, if alone, through MYHRM portal. The portal is the most unresponsive portal. It rarely works for loading all the inputs needed. When the ‘forgotten password’ is clicked either on mobile application or on desktop, it does not respond.

In fact, all the data that is required is in the form of KYC with the pension paying branch. Pensioner’s details should be available with the HR department. Further, even the spouse’s data likewise is available with the KYC where the pensioner and spouse have joint account and nominee details of the spouse, where the latter is the nominee, on the other deposit accounts held with the Bank. With so much of advanced technology and the Bank mentioning that they have AI application also for a decade, where is the need in the first place, for this harassment of the pensioner on the MYHRM portal? Can’t the Bank pull the data from the branch account of the pensioner? Photo, Aadhar, PAN, residential proof are all available with the Bank Branch.

During the first year of YONO it was ‘you’ for the bank and ‘no’ for the customer. It took two years to make it work efficiently and by this time, the UPI system overtook its strides. I am reasonably tech-savvy but fail to catch up with the SBI HRM portal.

Still, going by the call for a joint ID card with my spouse, I loaded all the details. The outcome is a disaster. My date of pension is wrong: Instead of 28.02.1994, it mentions 31.08.1997. Where from the data is produced, no one knows. Regarding my spouse data that has been faithfully loaded to MYHRM after great difficulty nearly six months back, her details are left blank, when the card is issued. 

I had to give up the card telling the branch manager, that I can do without the pensioner ID with my spouse details incorporated, as we have other IDs.

The staff who should have closed their systems at the end of the day at maximum 5pm sit till even 7pm entering KYC of new accounts or responding to printed requests of service!! They curse the system they work with day-in and day-out, but in silence. This is more because they continue to focus more on the sale of third party products like Insurance, Mutual Funds, Pension Funds etc.

I am writing this note with the hope that the Bank would make better use of technology and help many of my ilk not facing such risk.  Instead of being complacent, the Bank should introspect and it is not correction that is required but total replacement of its technology to stand in competition with its peers HDFC Bank and ICICI Bank.

Pensioners’ Association left a helpful note that those who have difficulty in accessing the MyHRM portal can seek its help in the Association office.

Is this necessary? Doorstep service to the pensioners announced by the RBI is in circulars. Can’t the tech-savvy bank think of better way of helping its customers and pensioners?

There are many unsung heroes. It’s time to have pity on them and find systemic remedies. I wish the Bank would regain its pride of place in the industry.

*The views are personal.

Sunday, June 12, 2022

Pensioners of SBI need redress

 

Government patronage and Institutional apathy for the Senior Citizens run parallelly

B. Yerram Raju*

I am 80 years old and retired from the country’s biggest Bank, State Bank of India as a Regional Manager in 1994. I read with great interest the story put out by the Economic Times today from the horse’s mouth – the Minister.

The synopsis of the story in Economic Times of 11th June 2022 attracted me most. India has 8.6 percent of the globally aged and such population is likely to move to 19 percent by the end of 2050.

Despite Article 38(1), 39 (e), 41 and 46 making it incumbent on the states to provide public assistance at the old age, mysteriously, lot many cases are hibernating in different Courts of justice, with Supreme Court, no exception.

Nearly ten thousand senior citizens who retired between 1991 and 1997 from the SBI, that include the Chief General Managers to Assistant General Managers, draw a measly pension of around Rs.28,000 per month, including Dearness allowance. With inflation now, their savings are getting negative returns. A few facts need public attention.

1.      Government appointed a Committee with Murmur as Chairman, and its report is still not implemented. Murmur Committee had recommended that the basic pension of Rs.4250/- has to be converted to Rs.7120/-. The eighth Bipartite retirees were paid pension on pay scale of eighth Bipartite from 01.05.2005; that is, those who retired between 01.11.2002 to 30.04.2005 were paid pension on old scale of Rs.4250/- whereas earlier seventh Bipartite Retirees were already paid pension of Rs.7120/-. This anomaly arose because of the policy of discrimination followed by the SBI and IBA while settling the issue of pensioners of earlier era.

2.      D.A. Formula – In the old Scheme D.A. on Pension was paid on Structured basis. With eighth Bipartite Salary Structure the System of 100% neutralization was introduced. Only 5th, 6th & 7th Bipartite Retirees are paid Structured D.A. The Federation submitted that when 100% neutralization has been accepted and introduced why deprive old Pensioners from this benefit? A small number of such retirees have survived, and it is not going to cost huge expenditure to the Bank.

3.      Commutation factor in SBI: The SBI retirees suffer double loss. The factor which is available in other Banks at the age of 70 is offered to SBI Retirees at the age of 60. As it is all the official get 40% pension. They, therefore, suffer double loss. We emphasized that Ministry should issue directives to provide commutation as per Industry Level norms to SBI Retirees.

Every effort made by the Federation of SBI Pensioners’ Association and even some individuals could not resolve the issue of the rise of basic pension from Rs.4,250 per month to the level obtaining in 2005 even after a wide range of discussions with the Indian Banks’ Association, SBI, and Department of Financial Services, Government of India. SBI has huge pension fund balances. Resources are not the issue for resolution.

Two questions become prominent here: 1. Despite SBI, a statutory institution set up under the SBI Act, having enough resources to raise the pension to such group, why should the bank look to the approval of DFS, GoI? 2. Why the DFS could not take the route of arbitration and conciliation instead of procrastinating the issue in the name and style of ‘matter is sub-judice’ when they were requested for approval, on the ground that a few individuals, seeing no easy solution raised the case with the Courts?

We not merely look forward to a peaceful and healthy life but also a life of dignity and honour. Government of India should bring in the issues of old age and pensions of statutory institutions under the ambit of the Department of Administrative Reforms, Pensions, and Pensioners’ Welfare to direct the institutions concerned to settle such matters through its arbitration not withstanding the cases in the Courts. Courts, to my knowledge and understanding, will be too happy if the parties come to a compromise and withdraw the cases.

National Policy for Older Persons (NP0P) should encompass all the older persons irrespective of the affiliation to a PSU and Atul Vayo Abhudaya Yojana that acts as umbrella for all government-aided schemes for the elderly, and SAGE would be meaningful instruments when their applicability is universal.

Department of Financial Services, GoI should confront a problem head-on and should have timelines for resolving the cases relating to pensions in PSBs and SBI lest many aspirants of justice get resolution only when they reach the grave. Let these hapless old age citizens – in the age group of 75-90 years, get relief sooner than later.

The views are personal.

https://timesofindia.indiatimes.com/blogs/fincop/government-patronage-and-institutional-apathy-for-senior-citizens-run-parallelly/

Published on 11.6.2022

 

Thursday, October 22, 2020

Roots to Fruits - The Journey of Development Banker

 

ROOTS TO FRUITS

This Book is all about Yerram Raju? Not just that. Apart from his life story, this book is the quint essence of development banking and financial inclusion that the country has been pursuing as its unfinished economic agenda.

 

He is perhaps one of the few to start his writing spree at the age of 20 and continuing for 60 years in a row. Not a single year was without a few articles from him, that too in reputed financial dailies and journals. This is perhaps his last book in life, that will end up with the publication of Part 2 by December 5, 2020.

 

Large families of the ilk to which the author belonged are consigned to history, following the family planning since the 1950s. Eldest of the twelve children, the author describes vividly how his parents have instilled great values, ethics and austerity. This formed the roots of his career path to pluck of the fruits in his later part of life.

 

Author’s mother proudly said that her contribution to GDP of India was significant with two of her children – one a reputed gastroenterologist in Texas and the other a reputed Certified Professional Accountant in the US. The second son is a Professor in Yoga at Chennai. With all the sisters married to their choicest spouses, they had a fulfilled life. The parents of the Author Dr. Raju who lived beyond 94yrs and 81yrs respectively had an enriching life nurturing great ambitions in their children.

 

The Book depicts his intense affection towards parents, his own family, and great reverence to his teachers. His verse on Mother and his prose on Father are moving stories. It is a tell-tale story of the growth of a large family and its contribution to the growth of the economy.  All the children of this large family, however, preferred nuclear families.

          


Since Yerram Raju, the author, grew up in austerity and simplicity, he saw his three daughters grew up in the same environment. Though they all wanted to stay in India when married, all of them moved to different countries.

 

The Book offers lessons to several upcoming youth on the choices one can make when confronted with multiple options having equal opportunities for career growth. The interviews faced by him can guide the youth. His career in Textile Mills threw up lots of challenges that he ably faced. His parental dependence made him leave the opportunity to take up one of the more challenging competitive careers – civil services and financial services.

 

His choice of banking backed by emotion had its fruits. He could see the rarest of rare things to happen – retirement of his father serving the same branch where he was posted as Agent, at his hands. Doing PhD instead of pursuing professional course that would have seen a rise in the banking career faster than he had, speaks of his continued choice of academics. This enabled him later to teach the civil servants at Lal Bahadur Shastri Academy of Administration, Mussoorie and Administrative Staff College of India. He was also an external examiner for doctoral degree of three universities. It is difficult to find a banker adorning     s u c h     position.

 

Lending to agriculture and allied activities, particularly to the financially excluded like the marginal small farmers, potters, small enterprises was an obsession with him. Simplification of systems and procedures always attracted his attention.

 

The author in this brief of 130-odd pages, describes the journey of development banking as it took place post nationalization of Banks in India. For those looking for solutions to the problems of credit to the poor and needy, this book offers ready-made solutions. The presentation is simple and lucid.

 

          According to him, Development Banking involves deposit mobilization through innovative schemes considering the needs of a variety of customers and servicing them, both online and offline, and financing development projects that add scheme specific infrastructure for lending and financial inclusion. Social banking is part of development banking. Both require efficient credit risk management. Extension services is part of social banking. Handholding, mentoring, counselling are essential requirements for social banking. It is treated as part of narrow banking, these days.”

         

          He won many an accolade both in the Bank and outside. One such is the recognition as International Man of the Year 1991 by the International Biographical Society, Cambridge for his contribution to rural development.

 

This book offers lessons on recovery of agricultural loans. According to the author, recovery is both an art and science. His success as banker, offers many a lesson for the current day bankers deeply mired in NPAs.

 

The Book is laced with quite a few case studies and provides lots of lessons on development banking. Part 1 of the Autobiography of the author up to the age of sixty years, ends with his transition to academics and consultancy. His relocation prompted by his stint with LBS National Academy proved a good decision at the right time of his career.

 

Readers can look to Part 2 for a greater excitement as it covers policy analysis of the country’s transition to liberalization, privatization, and globalization. The key milestones in this part 1 indicate that the areas would cover financial risk management and institutional innovation.


Available at Amazon store: www.amazon.in/amazon.com

 

Monday, July 20, 2020

Little Cheer for Bank Nationalization


INDIA NEEDS TO DO SOMETHING MORE…
CRISIS OR NO CRISIS
                                                                                   

The Day of Bank Nationalization in India passed off on Sunday. Smiles were kept years behind. None talk of village adoption scheme; no Chairman would go to a village these days to see how their rural branches are helping the farmers or the MSME is financed. No pride in ownership. No regret for bad governance.

But for a full page pull-out by the All India Bank Employees’ Association on the 20th July, 2020, who remembers the Nationalization Day? Neither the employees, nor the disappointed customers that include even the Banks’ own pensioners, nor those seeking credit from them recall the Day. People are only alert on wearing masks and spiriting their palms before handling the currency received from outsiders. Everyone cries wolf on the ever-bulging non-performing assets. The only solid reform that we boast of is the Insolvency and Bankruptcy Code. Job creation is hurt badly in the organized sector with near-65% of MSMEs shutting their windows in pandemic. Their markets are yet to revive.

Banks in UK, Iceland, and even the US resorted to the most criticized and least preferred route of nationalization of banks, when they confronted a crisis. The then OBAMA initiative that received positive response of stock markets since the announcement of Toxic Loan basket takeover under a joint Government-Private Fund, was however inadequate to retrofit the lost confidence in the financial system. 

The revival of ‘protectionist’ actions would seem to be asserting more in finance than in trade.  While the regulators of G-20 would be meeting at the shortly, global regulatory regime has serious limitations and they should be realigned with domestic regulations that have compulsive cultural characteristics. 

Events so far have proved beyond doubt that a global regulatory regime would not be able to provide appropriate solutions to the type of recession that had set in due to pandemic. No prediction as to when it would end. Annual Balance Sheets for 2020 are waiting for finalization in several institutions. Basel III may have introduced a modicum of discipline and uniformity in risk discipline among Banks globally. Several regulators sought more flexibility. It is important for India to realize its distinction in the emerging economic scenario and how necessary it is to turn the head on the screws.

At the commencement of Covid attack, India did well and even till now, we do not find people scrambling for food because farmer and rural India stood by the nation.  The biggest blunder of the system is more announcements than actions and imperfect monitoring and undependable statistics. All the rating agencies, IMF and World Bank kept the ratings low and estimated growth of 42% in 2021. Opening the economy with lot of courage has not been taken too kindly by Corona that has been surging every day crossing the 10lakh persons. India took the 4th rank in the world in Corona affected nations.

Second, we have the key sectors like Steel, Zinc, other Metals and Coal as also the transportation system largely in the public sector. We entered the Commodity markets and derivative markets in our anxiety to mix with the globe. WTO is almost nearing collapse with most countries choosing to adopt policies that secure their own nations and people, not caring so much for the global discipline. 

Third, there was no demand recession of the magnitude that the other countries in the globe faced.  Still the rural areas where still 65 percent of our population lives, drive the demand growth.  Having said that some facts that can be hardly ignored: there is a steep decline in job growth; steep declines have also set in the private sector trumped up by the global recession; the urban and metro retail chains took a severe beating; the real estate and housing boom that irrationally stepped up land values across the country took the first heat-stroke and with them, the dependent MSME sector that is seen as the engine of growth.

Fourth, Banks that lent heavily for the retail sector and real estate sector started facing the continuous decline in their performing assets.  They lost confidence in the resurgence of the demand and the productive capacities of the manufacturing sector.  Most public sector banks even, refused to go with the RBI to pump credit. 

Atma Nirbhar Bharat Abhiyan, the stimuli announced to combat Covid-19, injecting more than Rs.20lakh liquidity, still face risk aversion from the Banks. This high liquidity released only moved to the investments in treasury instruments and to quote Subba Rao, former Governor, gave confidence to depositors in the Banking system that their monies are safe with the Banks, notwithstanding PMC Bank resolution still waiting at the doors of the RBI. It has two windows: one, investments and the other credit. The latest report on Investments not withstanding the $10mn investment announced by Google, all the investment projects are reported to be lagging behind and the cost over-run of the projects already swallowed the entire incentive package.

MSMEs are yet to come out of the two shocks of demonetization and GST. After the redefinition, and after a host of digital platforms placed within their reach, the access to credit by all counts is a poor show. Out of the National Credit Guarantee Trust linked credit incentive to the standard assets, Banks disbursed only 50% or less. This was supposed to be automatic release of 20% additional working capital. The second window to the stressed assets through Sub-ordinated debt is yet to open as the operating instructions were received only a few weeks back.

SIZE – AN IRRATIONAL CONCERN
Merger of PSBs taken up while the economy was slowing down is yet to show up the results. The market value of the SBI post-merger is way behind its peer, HDFC in the private sector. Sanctioning Rs.1200cr to a known defaulter in its books and erstwhile chronic NPA resolving through IBC, does not hold SBI in any high esteem either among global peers or its own clients. Government of India, by merging PSBs to 10 from 28 did not gain either in image or confidence of the people. Several clients say that corruption has become endemic in PSBs and not even acknowledging a complaint, or a letter of customer is so habitual that the latter are in the lurch.

While the Government’s efforts to digitize the delivery system have borne fruits reasonably going by the way the MNREG wages and other direct benefits reached the intended groups during the last two years, financial inclusion is way behind. The reach of banks to the poor has declined.

Regulator’s job is to make sure that the vertical and horizontal growth of institutions should not be allowed to go with a feeling that because of their size they are insulated from collapse and that the Government and regulator had to do something to keep them afloat even in the worst event like bankruptcy.  This is where the RBI should reformulate its views and ensure that the organizational structures irrespective of their affiliations do not overboard the governance and do not oversize.

The silos-based regulatory system currently in vogue, with the RBI regulating Banks and NBFCs, Stock Markets by the SEBI, Pensions by the Pension Fund Regulatory Development Authority, Insurance by the Insurance Regulatory Development Authority, and Commodity Futures by the Futures Market Commission should be effectively brought under Financial Services Regulatory Authority. Department of Financial Services, Union Ministry of Finance may have persons of eminence but when it comes to examining micro issues for macro management, it left lot to deliver. Collective wisdom needs to emerge to improve financial regulation and governance that affects 130bn people does not brook delay.  

India, for example does not have credit risk insurance of the order prevailing in either Italy, or Germany or South Africa.  The Credit Guarantee Trust for Micro and Small Enterprises is but a poor cousin of the trade and credit risk. Credit Risk could not be introduced in India as the IRDA was apprehensive of the consequences of credit default.  It is perhaps of the opinion that the moral turpitude would reach new dimensions if credit risk is introduced. 

Percy Mistry Committee called for a unified regulatory architecture for resolving issues dealing with segmentation of financial markets into banking, capital markets, insurance, pensions, derivatives etc. Sweden, Singapore, UAE, UK, Republic of Korea to cite a few have already moved into the unified regulatory system.


OPERATIONAL ISSSUES:
Warren Buffet, the most reputed investor, is quoted at number of places: “Derivatives were financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” Over-the-counter derivatives that are off-balance sheet instruments come to surface suddenly when their collaterals fall and when their values become riskier to hold, killing in one stroke rest of the healthy assets of the Banks. The delivery and recipient systems have not reached a level of maturity to play with them, even a decade after their active entry.  Indian financial system cannot afford the consequences of systemic risks arising from their instrumentality.

Let me go to the most familiar area – Credit Risk that is mostly understood as risk of default.  Here the risks arising from asymmetric information have not been dealt with. The Credit Information Bureau India Ltd.,(CIBIL) is the only institution that currently unfolds client’s historic information at  price.  Entry of multiple players with the enactment of Credit Information Services Act of 2005 is put on hold.  Trade and Credit information services should enter the competitive domain for the information system to get into a semblance of order.

Credit rating agencies in India that are approved by the RBI are none other than the Fitch, Standard and Poor, Moodys etc., whose ratings busted on the threshold of sub-prime crisis and beyond.  There is no proof that they are doing their job differently.  Until the rating agencies’ services are paid for by the financing institutions that make use of the ratings and hold them accountable for the ratings, there is no guarantee that the ratings per se would add to the quality of the credit portfolio the banks carry in respect of the rated assets. 

While the Government and the RBI, Insurance and Capital Market regulatory authorities have proved one-upmanship over the other regulatory authorities in reasonably insulating the Indian Financial System from the impacts of the current global crisis, a large gap remains in what is needed to be done. The time to put things in the right shape is now and right away.

It is high time to appoint a High-level Committee that should also include outside experts to clean up the banking system with an open mind.
------------------------------------------------------------------------------------------------------------*The Author is an Economist with three decades of banking experience and a Risk Management Specialist He can be reached at yerramr@gmail.com The views are author’s own.




Wednesday, September 4, 2019

Big Bang Bank Mergers


Bank Mergers Again at Most Inopportune Time

Strong economy and weak banking can hardly coexist. We have been stuck with weak banking for the last eight years in a row despite most wanted reforms like the introduction of IBC, drive for financial inclusion like Jan Dhan and introduction of MUDRA. There were 40 mergers and takeovers during the post nationalisation period including the SBI merger.  One wonders whether we have drawn lessons from these experiences.

Looking at the immediate past, SBI merger with Associates is yet to deliver the intended results. 5000 branches were wound up effectively guillotining the reach to the rural clientele. Decision-making is at its lowest speed. Highly informed sources say that the merged associate bank staff at all levels are looked down upon by the pre-merger SBI. Achievement motivation is at its low levels.

Even as such settling was in the process, second bout of merger took place with Bank of Baroda, Vijaya Bank and Dena Bank. While the SBI balance sheet took two years to come back to profit, BoB jumped to profit at the end of first year itself. Obviously emboldened by the apparent frictionless mergers in the immediate past, MoF announced merging ten banks into four.

Can this be at any worse time than now, when headwinds of recession are blowing hard and global uncertainties are on the rise with trade wars between US and China and our own economy’s GDP growth tanking to 5% this quarter, the lowest in the last eight years?

25 years passed since Narasimham Committee recommended for six large banks but warned that it should not be with a combination of weak banks. Watch out: just eight months back, all the targeted banks were under Prompt Corrective Action Plan (PCA). Nine out of the ten have net NPAs above the danger level of 5%. Further all these banks are to be recapitalised meaning that they are weak upfront on capital. Further, lately, their balance sheets are saddled with Derivatives and Guarantees that may move up and add to the losses. Therefore, those targeted for merger are weak banks and not strong ones.

Y.V. Reddy, D. Subba Rao and Raghuram Rajan on one occasion or the other have cautioned the government over consolidation of Indian Banks as a panacea for the ills of the banking system.

While past accomplishments are no guarantee to future success, past failures can serve as good foundation for enduring success. Financial analysts like Anil Gupta of ICRA feel that the merging banks require harmonisation of asset quality and higher provisioning levels among the merging banks. 

Every merger or acquisition is expected to create value from synergy of some kind, and yet all the statistics show that successes are in the minority and failure can be quite expensive. Excepting that all the targeted banks have technologies in sync, no other synergies are seen on the horizon. Each suffers from heavy baggage of NPAs with several of them in the uncertain NCLT window.

Banking is all about financial intermediation. People are at the epicentre of banking both before and behind the counters. Culture of institutions is intertwined with the diverse cultures spread across the country. Success of mergers across periods and nations is elusive regarding the human resource and cultural issues.

Canara and Syndicate Banks are of the same soil and they have better prospect than the rest to derive advantage of merger. All the other merging banks would struggle to synergise on cadre management, incentive system, risk practices etc. Let us not forget that there is a 74% spurt in Bank frauds in PSBs more than others and several of them emanated from system weaknesses.

It is therefore important that the big banks start becoming humble and learn lessons instead of becoming conglomerates of unwieldy nature. Banking basics and customer service can hardly be bargained.

Government after hindsight decided to start the Development Banks to fund infrastructure projects and relieve the PSBs from this window as experience amply demonstrated that they are not cut for that job well due to their funding long-term projects with short term resources.
McKinsey has recently warned in an article: “Today’s environment is characterized by rising levels of risk emanating from the shift to digital channels and tools, greater reliance on third parties and the cloud, proliferating cyberattacks, and multiplying reputational risks posed by social media. Faulty moves to make risk management more efficient can cost an institution significantly more than they save.” Will the new CROs, when appointed, be capable of taking care of this concern?

In another study on M&A, Becky Kaetzler et al. argue for a healthy Organisational Health Index post-merger where they say that unhealthy acquirers destroy value, while healthy acquirers create value and tilt the odds toward success. Leaders considering mergers should first assess their organization’s own health to better gauge whether or not to take the merger plunge. In the instant case, all the organisations in the target are not at the expected health in the financial sector.

Leadership for transformation and good governance are critical for financial mergers to be successful. These emerging big Four out of ten should prove on these two counts that they hold these necessary virtues.

The announcement on governance improvements simultaneously released by the FM need a lot more assurance on the selection processes for the Independent Directors, non-executive Chairmen and their role. It would in fact be prudent to introduce a Declaration in 250 words annually as to his contribution to the Organisation so that the Board and the Directors can measure up the achievements against such statement. The bigger reform required from the owner is a pledge not to interfere in loan sanctions and move a resolution in the Parliament that no party would indulge in loan write off either for the farm or other sectors unless the areas are affected by severe natural calamities.

Further, higher capital allocation with or without Basel III cannot prevent bank failures triggered by systems, people and processes. Capital infusion should be done after specific commitments from the capital-deficit banks on the credit flow to the prioritised sectors, revival and restructuring of viable enterprises in accordance with the RBI mandates and recovery of NPAs.

There can be no energy without friction. The envisaged mergers are bound to have friction and it is the future that decides whether this will bring positive or negative energy. It’s to be hoped that even renewable energy through the cross-culture merger would bring the intended results. Let us not forget the dictum – too big to fail’ would eventually require the government to bail them out of any failure that ordinary citizens would not like to see or wish.





Wednesday, July 3, 2019

The Probability of Gains and Risk Aversion


The Probability of Gains and Risk Aversion:
The frontiers of failed negotiation of Jet Airways

Toss a coin to help a friend taking decisions with 80 percent success unlike in Sholay picture where Amitabh Bachan showed 100 percent success with a coin of both sides’ heads only and no tails to lose. In the case where the coin has both head and tail, the risk of loss looked far lower than the prospect of gain.

I had a friend who bargained the landed properties stuck in litigation knowing well that the disputes take at least 20-25 years to settle in court. In the interregnum he used to invest on land – for a dug-well or borewell, commercial farming, horticulture and food crops in an admirable mix. In 80 percent cases his gamble paid. In the 20 percent cases where he lost also, he recovered the entire investment. He left a huge property for the progeny to gain. His estimation of risking the loss proved negative and probability of gains proved positive.

A colleague of mine, since the days of joining the bank, used to buy just Rs.100 worth gold and at the end of 30 years when he reached the position of Deputy Managing Director, he was rich with gold and cash. On a fateful day for him, after attending a marriage function noticed huge burglary and his life’s gold fortune is lost excepting those worn by his wife. The Risk of loss was least expected by him so much as the probability of gain.

In all these cases, to quote ‘Thinking Fast and slow’ by Economics Nobel Lauriat (2002) Daniel Kahneman, both probability of gain and risk of loss are a combination of skill and luck. Indian banks’ ability to measure the probability of gains versus the risk of losses missed out both on ‘skills and luck’!!

Take the latest case of Jet Airways that involved Rs.8500cr of assets in banks’ books and Rs.25000cr of non-banking assets for recovery. Banks involved that included the lead lender SBI taking the pilot seat must have spent Rs.100-150cr in terms of time spent, travel and negotiation costs and yet failed and now it is taken to the NCLT. 50% of debt is already provided for losses.

In this case like in all corporate bad debts, the borrower-firm is provided ample opportunity to put forward its point of view. Naresh Goyal placed his cards dexterously and the final jolt came when Etihad wanted 85 percent haircut. And there is no case in Middle East where Banks ever conceded 85 percent haircut!! Indian banks proved that they lacked both skill and luck to ensure a probability of gain even amidst huge loss staring at them.

Theoretical underpinnings in behavioural economics suggest that the tendency to overcome the desire to achieve gains is blurred by the desire to avoid losses. Foreseeing gains with a historical hindsight of losses require certainly either a broad vision or fresh thinking. For the involved parties it is difficult to have either. RBI seemed convinced of the need for an independent evaluator in their June 7 instructions relating to the Resolution Plans of corporate and mid-corporate enterprises.

Take the case of around one lakh estimated sick MSMEs involving about Rs.102000cr of which at least 50 percent could easily revive if  (1) such independent evaluation for revival package is done; (2) the package is discussed with the beleaguered enterprise;  (3) the cost of evaluation is borne by the Bank and (4) revival package is delivered within specific timelines. The probability of gain against the provided loss of 50 percent is around Rs.51000cr with employment gains to the extent of 4-5lakhs and tax gains to the exchequer to an extent of at least Rs.15000-20000cr.
T
he cost of revival even if third party assessor is engaged for both the revival package and follow up would be far less than that for corporates of the likes of jet airways and Kingfisher. Since the regulator has already announced a policy for resolution and if the regulator is non-discriminatory similar guidelines should be announced for the MSME sector.

The problem, however, is in the identification of assessors/evaluators since the presence of MSMEs on the brink of failure is spread throughout the country, al bait, in a few states like Andhra Pradesh, Gujarat, Haryana, Karnataka, Maharashtra, Punjab, Telangana and West Bengal.

It is only Telangana that thought of Industrial Health Clinic to tackle sickness on a firm footing. During the last one year, this state promoted fintech firm has revived 41 enterprises, stabilizing employment of around 500 persons and protected investment of around Rs.10.62cr.

Right diagnostics, timely release of resources and continuous handholding and monitoring supported this process of revival. Had the Banks shown initiative, the effort would have reached at least 200 enterprises.

MSME Committee that presented its report to the RBI suggested Diagnostic Clinics as part of the Entrepreneur Development Centres little realising that the persons and skills required for diagnostics and resolution are far different from those for enterprise development  Even the fund suggested for distress resolution, viz., Rs.5000cr has not been structured properly, particularly when the stress of MSEs is prevalent in 10-12 States. Hope the RBI would draw lessons from the failure in revival efforts thus far from the Banks and review its directives. If the Banks can contribute to the Fund to the extent of 1% of NPAs in such portfolio and help the States setting up Industrial Health Clinics like Telangana Government, results can flow and investments can revive speedily.

Daniel Kahneman says: “Overweighing the small chance of a large loss favours risk aversion and settling for a modest amount is equivalent to purchasing insurance against unlikely event of a bad verdict.”


https://knnindia.co.in/news/newsdetails/features/the-probability-of-gains-and-risk-aversion-the-frontiers-of-failed-negotiation-of-jet-airways




Tuesday, March 21, 2017

Pre-merger SBI on the verge of bankruptcy?


Customers of State Bank of India (SBI), especially in south India, are forced to ask whether SBI is headed for bankruptcy as they find 99% of the automatic teller machines (ATMs) shut down and all branches declining withdrawals from the depositors’ savings account beyond a limit. Bank branches are refusing to honour cheques drawn on them, either their own or on third party, in spite of sufficient balance in the account. To top it, the bank’s branches refuse to give written objection for returning the cheque across the counter.  

In February, SBI, in a regulatory filing had stated, “…the entire undertaking of State Bank of Bikaner & Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT), State Bank of Patiala (SBP) and State Bank of Hyderabad (SBH) shall stand transferred to and vested in the State Bank of India from 1 April 2017.”

What does the rule-book say? Is it because of systemic failure or management failure? Does the blame rest with the SBI, or with the Reserve Bank of India (RBI) as well, as it has been a silent spectator for the last 15 days? Just last week, when Bandaru Dattatreya, the Union Minister for Labour, approached the RBI’s office at  Hyderabad, the central bank said that it has pumped in Rs1,170 crore worth of currency into the system, with half of it in the ATMs of banks and the rest to the bank branches.

Section 5 (c) of the Banking Regulation Act, 1949 defines a banking company as any company that transacts ‘banking business’ in India. 

The Act clarifies, in clause (b) of the same section, that the expression ‘banking’ found in the definition should mean accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheques, drafts, order or otherwise. To constitute the business of banking today, the banker must also undertake to pay cheques drawn upon himself (the banker) by his customers in favour of third parties up to the amount standing to their credit in their ‘current accounts’, and to collect cheques for his customers and credit the proceeds to their current accounts. Lending by itself does not constitute banking business, clarifies ML Tannan. 

A recall to all this became necessary, for the banks, even of the ilk of the SBI, seem to have forgotten the basics of banking. Yesterday I paid a carpenter for the work done at my house, by way of a ‘bearer’ cheque drawn on my savings bank account, Rs13,750, which was presented at the counter. The official at the counter and the accountant refused to pay the amount, saying that they can pay cash only up to Rs5,000 as they do not have enough cash. This is not a solitary instance. During the last fortnight, many customers faced this situation. Many members of the Resident Welfare Association, Kalyanapuri, Hyderabad, brought up this issue and demanded its resolution.

The payee asked for written objection, which the bank officials refused to provide. The cheque was otherwise in order in all respects – with proper date, proper signature, with no difference between words and figures and on top of all adequate balance in the account.  Negotiable Instrument Act requires that if a cheque or Bill of Exchange, is returned either on the counter or in clearing, an objection memo duly signed by the authorised official of the bank shall be provided with relevant reason.

In case a bank branch declines to honour the cheque in writing for want of cash in its vaults it would amount to the bank going bankrupt. In the case of SBI it is also the Agent of Reserve Bank of India and operates currency chest at number of branches. Whenever one branch falls short of the cash, the Bank is supposed to make arrangement for filling the vault with the required quantum depending on the needs of the branch. The transaction between the branches on such count can form internal cash management of the bank and only information to the RBI is adequate.

Contrary to this entire practice if the bank chooses to tell its customers that since there are not enough deposits coming into its vault and is therefore restricting payments to its customers withdrawals up to whatever limit it decides surely amounts to sheer mismanagement and frustrates the customers.

Since the bank is shutting off the ATMs and refusing to pay cash either in full or in part, the customers seem to have stopped depositing cash into their accounts and preferred to keep cash for the rainy day and meeting their essential cash requirements. This sets the vicious circle into play.

Whenever creditors’ demands are not met and assets do not support liabilities of a bank, that bank is said to be on the verge of bankruptcy. But by statute, the SBI cannot go into liquidation at its will.

Customers are losing faith in the banks with which they have been transacting for decades!! Bad banking and good economy can never co-exist. Let not SBI declare bankruptcy ahead of its merger.