Friday, December 24, 2010

Banking Scam

Enough time had been given to Mr. Kalamadi and his associates to clean their houses before CBI raids. Enough time had been given to Mr. Raja and his associates as well to do work as per his whims and fancies violating all existing norms for allocation of spectrum before he tendered resignation and before CBI raided his house. CBI raids are nothing but willfully managed dramatic act to demonstrate the people of India that the government is taking action against the corrupt officers. Absolutely non -sensical and dramatic acts are being played by cleaver politicians of ruling party to salvage public image. eventually none will be punished.

In fact none is trustworthy in India. Even judiciary is facing serious charges of corruption. CBI is already blamed to be a puppet in the hands or ruling government.

However it is only Supreme Court and state level High Courts on which people of India are constrained to rely upon to some extent.

Both of Mr. Kalamadi and Mr. Raja have already caused huge loss to the government. Kalamadi has paid hundred times more than what the government proposed in the year 2001 and Raja has realized at rate what was prevailing in the year 2001 in contrast to many times higher rate which the government could have received through open tender. It is very difficult to establish the charges. It is very difficult to assess and establish the quantum of loss which has been caused to India because none of the investigating agencies can tell or imagine what rate government could have got through tender in the year 2010 or in 2009.Similarly it is not easy for CBI to prove that Kalamadi paid extra ordinarily higher rate than the prevailing rate for a particular type and particular quality of goods and services he bought for Common Wealth Games and in return he earned wealth for himself or for his associates.

It is an universal truth that in all contractual work or in government supply work of value of Rs.100 in government offices and government departments ,actual work done or actual value of supplied goods and services is hardly Rs. 20 to Rs.50. Everyone knows that 20% of the allocated fund is actually consumed and used for work and 80% of the fund is consumed in distributing bribes and commissions to various individuals, political workers, top leaders, ministers, local MLAs and MPs, brokers, middlemen, local musclemen called as extortionists, Naxals and mediating or executing agencies.

If one looks into lending made by Public Sector banks and assess the quality of assets of the bank honestly he will find that there are at least ten lac crores worth assets as Non Performing Assets though declared NPA of PSU banks as on March 2010 was only one lac twenty thousand crores rupees. Bankers are not punished because all top executives, RBI officials, Ministers are guilty for making bad lending. In fact only those officers become executive, DGM,GM, ED and CMD in a bank only if he is expert in bad lending , expert in keeping higher authorities happy and maintain a strong lobby of God fathers not only to rise in career but also to get protection in time of crisis or when he is exposed or trapped in CBI net. As such scam of 2G spectrum under investigation by CBI is very small compared to continuing scam in banks. If a CMD or ED of a bank makes a phone call to GM to ensure lending of hundred crores to relative of the Finance Minister, entire processing of sanction of desired lending will take place a shortest period possible. This is called lobby banking or corporate lobby policy. When Ministers or RBI shuts their eyes and ears, none is capable to stop corrupt practices.

Everyone in our country knows that development funds sent by state or central government to district or block level offices are not fully distributed among real beneficiaries.

All are birds of the same feather. Then who will punish whom is a million dollar question.

Root cause of all corrupt practices is whimsical transfer, arbitrary promotions of junior staff by top rank officials to ensure a team of yes-men and flatterers around him so that none can raise the voice against his misdeeds and none can be whistle blower because everyone gets their due share.

Scam of value of hundreds and thousands of crore rupees cannot take place without the support of hundreds and thousands of persons in the system. This is why more and more people will try their best to shut the mouth of CBI officials and court judges. Many more middlemen and brokers will play their role and earn their share in ill earned money. Corruption cannot therefore be reduced at least in the frame work of democracy or by applying soft laws or by delayed action or by inefficient courts.

Thursday, December 16, 2010

Financail Inclusion and Branch Expansion

In seventies and eighties there was huge pressure from government of India and Reserve Bank of India on Public sector banks for opening of branches in rural areas so as to cover all villages. As per policy of Service Area Approach introduced by RBI each branch of a bank had to serve 15 villages and cover 10000 of population. There used to be Block Level Banker’s Committee (BLBC) constituted by Lead Bank Manager, Branch Managers of all banks in the block and block level officials to prepare an annual credit outlay plan for the year for the service area and monitor its implementation. Thereafter District Level consultative Committee (DLCC) and State Level Banker’s Committee (SLBC) were constituted to monitor the quality and quantity of progress.

But unfortunately this entire exercise in the real field proved formal and futile during last thirty years of its existence. Village level, District level and State level plans formulated by BLBC, DLCC and SLBC proved a futile exercise so far as the real welfare of villages, elimination of poverty and idea of social welfare is concerned. This is a bitter truth that all these plans failed miserably and position of villagers did not improve despite several poverty alleviation programes undertaken by PSU banks in one name or the other during last for decades. Officials of banks and state government offices still complete these formalities of conducting meetings, formulating annual plans and there submitting the report to Banking Division and RBI but there is none at field level branches of banks or block offices to take care of plan and its execution.

In the year 1991 government of India adopted the path of economic reformation in line with global policy of liberalization, privatization and globalization (LPG). Banking reformation also was also planned and put into action under the leadership of the then Finance Minister Mr. Manmohan Singh. Banks were given huge freedom, rates were deregulated, licensing policy was reframed, private banks were opened and gradually banks changed their working style from traditional social banking and mass banking to Class banking, from social service entity to profit making unit. In nineties, several branches of banks were closed or turned into satellite branch only because there were unable to earn profit. Villagers who lived in the service area of closed branches were forced to contact other branch of that bank at farther place or to contact some other nearby bank for financial assistance or for any banking operation. During this period not only poor villagers were discarded and left at the mercy of traditional money lenders for exploitation, but even banks were also constrained to write off huge amount of loans and advances disbursed in the villages.

Government of India had to infuse capital several times to make PSU banks strong enough to compete with global banks. Merger of banks were point of debate at all level so that their lending capacity may increase and they may be able to finance to bigger and bigger project .In brief the choice of bankers became top industrialists and top traders and not poor villagers. Banks now consider wholesale and bulk lending instead of retail lending. Ambiance of most of the branches have been changed and decorated to suit rich society and to make it comparable with private and foreign banks which were by birth made to serve rich class people.

Banks were nationalized in 1969 by Late Indira Gandhi to make banks accessible for poor villagers. Unfortunately, poor villagers have again been thrown out of bank’s branches during last twenty years of reformation in banking. In the new set up poor villagers are directed towards Micro Finance Institutes (MFI) or advised to come through newly formed broker called as NGO or form their own Self Help Group (SHG). Banks gradually turned to non banking business like insurance, and demat services to earn more and more profit by less and less staff because they realized that profit earning by PSU banks competing with private banks was not easy .In the changed situation banks are trying to show false and cooked profit by hiding their bad assets or selling their bad assets to ARCs or by imposing service charges for every banking operation they do in the bank.

Banks are trying to earn Non Interest Income because their Interest Income has sharply come down due to unwarranted rate war declared by government under the frame work of reformation policy. Profits of PSU banks are facing continuous erosion due to increase in Non Performing Assets and hence bankers are least interested in rural lending which involves comparatively more manpower and enlarged network of branches.

Now after twenty years of reformation RBI has once again realized that need of the hour is to serve the villagers. New word called as Financial Inclusion has become the slogan of bankers. But as a matter of fact their all field activities indicate that banks are bent upon Financial Exclusion of poor villagers by directing them to MFI or to NGO or to form SHG. Poor people in villages and towns have now to depend on ATM and biometric cards for cash deposits and cash payment and on MFI. NGOs and local money lenders for availing loan facilities. Banks as also government of India think it wise to make finance to MFI and NGOs in hundreds of crores of rupees at base rate or at low rates and the ask MFI to make finance to poor people at many times higher rates.

Financial Inclusion is used merely for opening of No Frill accounts and to serve the purpose of UID (Uniform Identity Number).The word ‘Financial Inclusion’ is frequently used by political leaders and government officials along with bankers. But in fact no real improvement of poor people has taken place during last twenty years of reformation policy initiated by the government in the year 1991. It will not be an exaggeration to say that poor people were better served during the period 1971 to 1990 (after nationalization of banks in 1969). To add fuel to fire RBI is again putting thrust on bank management to open more and more new branches to reach the level of each Panchayat.

Bankers have burnt their fingers in large scale expansion program under Service Area Approach plan of seventies and again they are committing the same blunder by opting unwarranted expansion of branch network to spread it upto Panchayat level without increasing manpower to suit the need of branch expansion. The new word ‘Financial inclusion’ is nothing but is old wine in new bottle and this continue to make mockery of poor people.

Under the umbrella of reformation banks have stopped recruiting fresh staffs to save staff cost and to earn more and more profit in line with other capitalists who are exploiting Indians by way of labour exploitation and by indulging in large scale profit making. Business of banks have multiplied ten times during last five years but number of staff working in banks have come down compared to what it was five years ago inspite of addition of new branches and new businesses in banks. As such employment opportunities available to educated youth are also shrinking in the era of reformation.

Obviously we need to debate whether banks are serving poor people, whether policy of capitalism adopted by Government of India in the name of economic reformation suits to Indians environment and whether growth of five percent of population of Indian is the real motto of the government and the real purpose of GDP growth. We Indian have to ponder over the prevailing policy of capitalism and discuss whether it is more important or we have to revert back to the policy of socialism or to adopt a middle path in unison with the policy of Mixed economy. Poor and middle class of Indians who constitutes 95% of population cannot even afford quality education, quality health care services, quick justice in court and quality food in our country because rich and affluent class have been given complete freedom to exploit consumer and earn profit without any fear of administrative action under the policy framework of reformation called as LPG.As such this large segment of society have to depend on bank’s loan for all their essential needs food, health care, education and so on.

Last but not the least PSU banks in general are running in acute manpower shortage but still management of the bank is least inclined to recruit fresh manpower to keep cost of establishment at the lowest. Besides there is complete lack of devoted, talented and honest workers due to increasing number of corrupt officers sitting at top post who discourage good workers and hence the assets of the bank are undoubtedly at stake and the health of the banks has to face is in way sound. As such large scale expansion undertaken by branches may prove to be suicidal activity and the word Financial Inclusion has become a laughing stock for common men. Neither bankers nor poor people are happy and safe. Even banks are not safe but more confused because they are unable to decide which path they are actually to go when government changes policy so frequently and in a impractical way.