BANKS AND THE POLLUTION

Pollution is a big monster which has engulfed the whole world especially the developing and the underdeveloped countries. The reason being that such countries need to develop factories, industry, infrastructure, mining, technology, defence, agriculture and education etc. Except for services and education, all other sectors of the economy create pollution in one way or the other. Factories, industries, and technology create smoke dust, dangerous gases, heat and noise which all add to the pollution level all around. Infrastructure creates noise, dust, and electronic pollution. Development in defence is the mother of all types of pollution in the air, on the ground and in the sea. On the micro level, all of us contribute to the addition in pollution in many ways.

Banks are the agents of development and no economy can survive or develop without a sound banking system. while they are contributing to the development of nations, they are by default contributing to the creation of pollution. Creation of pollution can’t be segregated for elimination from the development, however, it can be reduced by going green wherever possible. But we can’t have a green defense, ammunition, missiles, warplanes. Likewise, we can’t dream of green industrial wastage, green effluents, and green noise, smoke, and e- wastage. These need to be properly managed and treated before being disposed of.

Pollution as such is a compulsory evil which needs to be managed in a proper manner and kept at a tolerable level: a total elimination is impossible.

There are mainly two bodies which are entrusted with the job of managing pollution and cleanliness. Urban and rural local bodies such as municipal committees/corporations and the pollution control boards. However, the green tribunals are also doing a wonderful job by enforcing applicable laws for the safety of the environment and ecology. Municipal bodies lack planning, adequate funds, and trained manpower. The very urgent and necessary job of cleaning and garbage management is being done in a very casual manner. Municipal garbage from drains is removed and stocked in lanes, dumped on the roads in open where animals, birds, and flies feast to their will and is ultimately transported to dumping yards which are either within the dwelling areas or are very close to them. The small and the big drains remain choked thereby creating harmful gases and spreading of foul smell laced with dangerous bacteria. The effluent in the drains is allowed untreated into the rivers and canals with impunity. It appears as if all the concerned are in a deep slumber although they like other citizens are equally affected by the pollution so created.

The plight of the municipal field workers is pitiable. They are not properly trained to handle such a risky job which in addition to affecting their health has sometimes resulted in their deaths due to exposures to hazardous and toxic gases while cleaning the gutters. Their very tedious, dangerous, and risky job which ordinarily no one will like to do unless one has the compelling circumstances of poverty, is not properly appreciated and suitably compensated. The need of the hour is to provide adequate training to these menial laborers and their job to be properly compensated and appreciated. They need to be provided with all the necessary items required for their safety such as helmets, long gumboots, rubber gloves, and pollution masks. Unless they are not adequately trained, compensated, provided with necessary safety items, they can’t be held accountable for any lax in the performance of their duty. A very casual approach at the administrative level is bound to induce a work culture of casual nature.

The pollution control boards have the prime responsibility of controlling the pollution but the level of pollution all around speaks volumes about the failure of their efforts to control the same. The history is witness to the fact that whenever any control was exercised on any activity, it went out of control. We had exchange control, gold control, and also the birth control but all these controls failed to achieve the desired results and ultimately their nomenclature was changed. Exchange control was changed to Foreign exchange management act (FEMA). Gold control act too has been repealed and now it is from control to seamless trade. Birth control is now Family planning. Control seems to be a crude word. Pollution control boards are therefore desired to be renamed as pollution management boards which should be made accountable for the proper management of pollution.

The present position of these boards is not appreciable and seems to be lacking in action, performance, and governance. Factories and industries are existing in the middle of towns, cities, and the metros, making hell for the life of the residents. Diesel generator sets at almost all commercial complexes as well as at Pvt. residences are contributing a lot to the already existing pollution. Municipal waste is dumped in the lanes and on the roads. Even the greenest agriculture/horticulture sector is not behind in contributing their share of pollution by burning huge quantity of stubble in the fields and pruned branches and dry leaves of the trees. Excessive use of chemical fertilizers and spraying of poisonous pesticides is adding to the pollution in the air and on the earth thereby disturbing the balance of nature ( SAVE THE EARTH ). Toxic effluents from factories and households are allowed freely to flow to the so-called sacred rivers.

And above all, we the citizens do clean our houses but unmindfully throw the garbage on the lanes and roads sometimes just in front of our houses. We always expect others to respect the law and do things for us. Who will come to our rescue if we are bent upon digging our own graves and make this wonderful planet a hell for our coming generations? The coming generations will curse us if we all, responsible for this mess, didn’t mend our styles of working and ensure the health of the Earth and that of humanity as a whole.

Construction of unplanned or wrongly planned concrete jungles after destroying the natural green cover without caring a bit for the ecology and environment is being allowed which also is a major cause for the pollution. Who will stop this or mend the wrongs already done? Are the concerned authorities waiting for someone to come from the heavens to set things right for us? Nature has already started showing its anger(NATURE’s EQUILIBRIUM) and reaction in the form of storms, earthquakes, tsunamis, and volcanic eruptions. These early warnings are signs of the Doomsday. We all have to respect nature and try our best to save our beautiful planet.

Banks although not directly creating pollution, but are aiding the creation of the same in a big way. They can play a vital role directly and indirectly in managing pollution in a big way. There is hardly any activity which is not in one way or the other dependant on the banks. Banks should strictly ensure that the activity they are financing will not pollute the air, water or the land in any manner. They should ensure that the factories and the big complexes have proper sewage treatment plants (STP) in proper working order as well as arrangements for the proper treatment and disposal of the garbage, effluents, and the emissions. Installments of finance can be withheld until these facilities are not created. Banks should ensure that such add ups are in proper working order by physically inspecting them during their periodical inspection of the inventories and the plant, machinery, and other assets financed by them.

Banks do ensure that the unit proposed to be financed has adequate space/land available but have failed to ensure that the proposed loanee for a vehicle loan has adequate parking space at his place of residence or elsewhere excepting the lanes and the roads. The lanes and the roads appear as car bazars with hardly any space left for movement of vehicles or for the people to walk. Banks have a great role in the creation of congestion in the lanes and on the roads thus slowing down the movement of traffic and creation of a lot of pollution. One may have to visit the bank ten times to get a loan sanctioned for the purchase of a buffalo, but the car loan is sanctioned, disbursed, and even the car is got delivered within less than an hour. We see attractive advertisements of the banks in the newspapers about the facility of quick sanction and disbursement of the loan for the vehicle and other electronic items at much cheaper rates and at no margin or very nominal margin. Has anyone seen such an advertisement for a loan for the purchase of a cow, buffalo, or a horse which provide livelihood and create no pollution? Banks also need to promote with the similar zeal the sectors which are eco-friendly and provide more job opportunities to the people.

Banks need to promote those sectors which are going green by setting a self-example of going green themselves. To start with they can get all their main buildings run on green solar energy by harnessing the same on their rooftops and growing more green plants, grass, and flowers in the open spaces. This would set an example for others to follow. They should promote the use of green manure in agriculture and horticulture by helping the farmers to convert animals dung into vermicompost and the converting the other field wastage, leaves, pruned branches of trees into the green manure by the available techniques which are cheap and easy to use. This needs to be done in a mission mode as this can change the life of people in terms of quality as well as financially. They can do this as well as help farmers in the management of stubble by diverting their CSR funds for this noble cause. Banks are agents of development, let them now prove that they are agents of change also. With the type of dedication, commitment, and zeal with which the bankers have been working, it is expected that they can do this very effectively.

BANKS; LEVEL FINANCING

Banks are the true agents of development of any economy. They have played a vital role in the overall development of economies world over. Although overall development did happen but the spread of the same is not even all along, which has resulted in uneven income in different sectors and areas. The distribution of credit, therefore, needs to be rationalized in such a manner that the benefits of the same reach out to all across the areas as well as sectors and activities.

Banks have always shied away from lending in rural and undeveloped or underdeveloped areas and sectors despite a lot of directions from the regulators as well as from the state. This is due to the fear of losing money because of the nonviability of the proposed units and schemes in these areas. Lack of proper infrastructure in rural and underdeveloped areas is mainly responsible for the poor growth of the economy in these areas. The prime reason for poor lending in such areas is lack of infrastructure which makes the projects and schemes less viable and hence does not attract bank’s attention.

Now that lot of infrastructure has reached the rural and less developed areas. There are better power availability and better road connectivity, transport, and markets in the rural areas though not as better as in the cities but there is a great push to provide more and improve the existing facilities in these areas. Banks too have opened their units in these areas. The only problem is that banks are mobilizing resources from these areas and passing on the main part of the same for investment in other areas or to their controlling offices for deployment elsewhere. The required purpose of opening branches in such areas, therefore, gets defeated by siphoning out the resources from underprivileged areas to the better-privileged areas thereby further widening the gap of development in different areas. In order to ensure the equal level of development across all the regions, the norms for the calculation of credit-deposit (CD) ratio need to be redrawn/modified. Following suggestive measure may be of help to plug the loopholes in the system:

  1. To start with block should be considered as a unit.  For the calculation of CD ratio, all branches of different banks operating in a block be made to meet the mandatory CD ratio of 60% individually. Only that part of credit which has been utilized within the limits of the block should be taken for the calculation of CD ratio for the block. These ratios should be monitored at the Block level. The block-wise unit size may be carried over to Panchayat level after some time.
  2. Branches of a bank who in order to meet the requirements of CD ratio exceed the limits of the block and deploy funds in other blocks, or for the units in urban areas or industrial areas in other blocks. All such branches of banks should be imposed with a penalty of 1% on the interest earned on the amount of loan allowed in areas beyond their block and 2% on the interest of the part of finance in urban or an industrial area in other blocks.
  3. In order to encourage branches in the metro, urban, and semi-urban areas to fund units in rural and underdeveloped areas an incentive of 2% be offered provided 80% employment in such units is given to the locals of the block in which such financing is done.
  4. Foreign banks who have branches in metros only should also be made to contribute to the development of underdeveloped areas and sectors as per the rules of engagement with them. The Incentives proposed above may also be provided to such banks also.
  5. The amount of penalty and incentives stated above to be routed through a special fund which may be called ‘ Level Development Fund’ (LDF). This fund may be maintained by the coordinator of the State level bankers committee of the concerned state. Any shortfall at any time in this fund to be made good by the concerned state govt. The incentive to be provided or penalty to be imposed be calculated quarterly basis on the figures of 15th of the last month of each quarter in order to avoid artificial fluctuations on account of any window dressing to which the banks generally resort to in order to show better figures in the balance sheets on the  closing date of the respective quarter.
  6. In the case of consortium financing, the amount financed by the respective member banks of the consortium will be treated as financing in the block in which the unit so financed is located and not the block in which the financing branch is working and the penalty would accordingly be levied.  The location of the unit is to be considered and not the location of the controlling or administrative office of the unit.
  7. In case of income or commission earned out of nonfund based business such as a letter of credit or guarantees of any type, the penalty and incentive of 1 or 2% as the case may be, will be imposed under the similar circumstances of exceeding or entering in the jurisdiction of the block as discussed above.
  8. Penalty once charged is to be nonrefundable and no claim of any type to be entertained on any pretext such as the account becoming an NPA for any reasons.
  9. Any shortfall in the amount required to meet the mandatory requirement of meeting 60% CD ratio by any branch of a bank in a block to be kept in RIDF with NABARD at the prescribed rates.
  10. Branches of the banks in any block may divert funds after meeting the mandatory CD ratio of 60% in the block in which they are functioning for deployment anywhere as per their choice. However, in case they exceed CD ratio for financing within the block where they are functioning, they shall be given an incentive on the interest on the additional amount at 1%.

The CD ratio should be ensured to be maintained at the mandatory level by each branch of a bank block-wise, and by the respective banks district-wise, region wise, and state-wise. Inter-region and inter-state financing to be excluded for the purpose of calculating respective CD ratios. Suitable penalty as proposed above to be imposed on such lending. This would discourage flight of resources from the concerned areas to the other areas and ensure a level development of all areas and sectors.

In the present as well as during the future times the lucrative market for financing is in the rural areas as there is a lot of money and market in that sector.

BANKS: CHALLENGES AND OPPORTUNITIES

Banks at present are under tremendous stress because of ever-rising nonperforming assets (NPAs) and huge frauds which have taken a big toll on their profits, thus resulting into deterioration in their balance sheets as well as the brand image in the eyes of the public. Under these testing times, Banks are facing huge challenges which need to be faced with courage, maturity, dedication, hard work and tact. The challenges at present are enumerated as under:-

  1. The health of the Banks:-  The mounting NPAs, losses due to big frauds and continuous increase in operating expenses due to periodic increase in various types of variable costs such as salary, fuel, rent, and boarding lodging expenses are a big challenge for the banks to meet. These are a serious threat to the overall health of the banks. Concerned with this trend The Indian Banks Association (IBA) has offered a shockingly meager increase of only 2% to the bankers during the negotiations for the revision of their salary. This may be a cruel joke with the bankers but it speaks volumes about the health of the banks.
  2. Keeping the flock together:- Under the stress on resources, the workers get demoralized and start losing interest in the institution. Some may try to change job or search for the greener pastures. Only a team with high moral and a deep sense of belonging (A SENSE OF BELONGING)can keep the institution strong. This challenge needs a good and inspiring leadership at the top who could keep the flock together by providing guidance, hope, and good future to the stakeholders.
  3. Maintaining a sustainable growth:- With the graphs showing downwards trends, it is becoming difficult to manage growth in face of the tough national and international competition. All high-value proposals of multinational companies are taken by foreign banks who provide them credit at very cheaper rates because their cost of funds is very low. They can afford to give loans at thinner spreads and still make handsome profits because of high volumes and low cost of transactions. Because of reduced interests on deposits, the depositors are not attracted towards banks as in some cases, the net interest income after payment of income tax doesn’t cover the cost of inflation. Added to this is the fear in minds of the depositors about the introduction of a new law about bail-in in the banking sector, which though has been put on the back burners but people still have a fear in mind that the ghost may reappear at any time. They ponzy schemes and the crypto currencies like the Bitcoins have taken a big toll on the deposits of the banks. In view of stress on resources,  the banks are unable to fund large proposals.
  4. In-cumbersome procedures:-The age-old procedures of processing proposals with a lot of paperwork especially for the small traders and businesses and other small loans, discourage the perspective loanees from coming forward. Although some progress has been made in simplifying the procedure yet a lot needs to be done in order to attract customers.
  5. Comparatively Smaller unit size and strength of Banks:- Barring very few banks like State bank of India, the size, strength, capital base, and technological exposure of our banks is no match with the foreign banks. With the globalization and the world becoming a global village, our banks have to compete with the foreign banks. This is not possible unless we match their strength as well as the cost of operations.
  6. Diminishing of the physical interface:- With the introduction of technology in the banks, there is less interface with the customers as most of the transactions are done through the internet, mobile, or online banking, as is done in the foreign countries. Our culture, traditions, and behavior are different from theirs. Face to face interaction has an element of emotion to which we are used to, and the absence of which creates dryness in the relationship. With the increased size of business as well as the number of customers, it may be difficult to keep interface contact with them.
  7. Replacing the outdated technological infrastructure:- In order to match the competitors, the technological infrastructure needs to be updated or replaced with the more sophisticated and efficient one. This may not be economically feasible for the weak banks but in the face of competition and to ensure sustainable growth it becomes imperative to go for it. To stay in the market, an appreciable increase in the volume of business can only take care of the cost factor involved in the upgrading of electronic infrastructure. Only big volumes can reduce the cost of the transaction. The recent case of heavy costs incurred by banks while replacing the currency note holding trays of lakhs of ATMs, when the Govt. introduced new currency notes in place of old notes of different denominations is a live example of updating technology under compulsion in order to stay active in the market.
  8. Strengthening of internal controls:- In view of the rising NPAs and incidences of frauds, the strengthening of internal controls (DEFECTS IN BANK AUDITS AND INSPECTIONS) at any cost has become very urgent. The recovery of NPAs and strengthening of internal controls, management audit, effective inspections and audits of all operational activities, and forensic audits may add costs to the already burdened banks but there is no escape and must be activated in a mission mode in order to regain the public confidence.
  9. Skill building and succession planning:- Advance training in specialized fields and skill upgrading of staff is need of the hour. Gone are the days when banking was every body’s job and bankers used to be a jack of all trades but masters of none. Now with a lot of advancement in the banking field, new innovative ideas are the order of the day in order to beat the competition and the challenges. Value addition to banking products with fine packing and branding which may suit the tastes, requirements, and choices of the customers have to be tailored in order to stay ahead in the competitive atmosphere. A robust and sustainable succession planning must be done at least for the next two decades and which may be reviewed and upgraded periodically.
  10. Setting up an advisory for the clients and brand building:- The Brand building is a long and continuous process. Successful leaders have built successful Brands which have resulted in heavy returns for their businesses. A product can be easily copied by anyone but a brand can’t be copied. Banks need to attract more clients by providing them with the products suitable to their requirements and choice. The markets and businesses now are not protected against competition from across the international borders especially after the signing of the world trade agreement. Now only the strongest,  the fittest, and those who can afford to adopt a change can survive; others are bound to vanish from the scene. Under such circumstances, banks are bound to suffer losses as their products are exposed to greater risks. This is one of the reasons for a spurt in the level of NPAs of banks in the last few years.                                                                                                                                           THIS IS A BIG CHALLENGE FOR THE BANKS AND FOR MEETING THE SAME BANKS NEED TO PROVIDE EXPERT ADVICE TO THEIR CLIENTS AND FIND SOLUTIONS FOR THEIR SURVIVAL. BANKS NEED TO ESTABLISH ADVISORY WITH EXPERTS WHO COULD PROVIDE SOLUTIONS TO THEIR CLIENTS FOR SURVIVAL. The upcoming of big Malls, online shopping through big international giants like AMAZON, ALIBABA, FLIPKART, SNAPDEAL etc have adversely affected the retail market in the country. In order to compete with these big sharks, the retailers have to come up with a matching model of business in the market. Banks have to come up with new innovative models for their clients in their own interests.
  11. Retaining the existing clients:- In view of the tough competition in the sector, banks have a big challenge ahead in retaining the existing clients not speak of adding more to their kitty. The clients have various options and opportunities available to them, so the banks need to ensure that none of the good clients slips out of their grip. Gone are the days when there used to be a customer loyalty and attachment with their banks. Now the customers change banks more often than their vehicles. A regular contact with the customer/ holding customer meets by higher executives whose words and decisions matter need to be organized in order to create more confidence and bonding with the customers. Good leaders are good listeners and people love to be listened to. Promoting and advertising of banks products is very necessary. One of the cheapest ways to promote and advertise banks products is to feed their salient features as caller tunes into thousands of the mobile phones of staff members. In addition to products, the caller tune can be made to contain a mission or a brand promoting song. 

Good leaders have the tact and the wisdom to convert their weaknesses into their strengths and challenges into opportunities. All that is required is a strong will, dedication, a deep sense of belonging to the institution, and a good team of dedicated staff.

OPPORTUNITIES:- While there are big challenges, there exist equal opportunities also. Some of the opportunities available to banks are…..

  1. Big market and big population:- The size of the market is fast increasing and in order to meet the requirements of the second largest population of the world, which is increasing by 20 million souls every year, ample opportunities are becoming available  to the banks to finance in all sectors, may it be agriculture, horticulture and allied, industry and manufacturing, trade and services, infrastructure, mining, shipping, transport, power, tourism and so on. In addition to this, banks have the opportunities to go for business beyond the international boundaries as the entire world is open to them for doing business. All that is required is strength and will.
  2.  The country still not fully developed:- The country is still not fully developed and there is a lot of scope for investment in almost all sectors of the economy. Still, we are calling for FDI in various fields for economic development. Banks need to enlarge their capital and size to substitute the FDI. There is no dearth of opportunities, banks need to redraw their working models suiting the economic activity and matching the foreign banks.
  3.  Advisory services:- With the advent of an open economy, there is a need to change business models in almost all sectors. Banks can provide services for providing training to clients in order to take up new business models and earn some fees and attract customers. This is already being done on a small scale by banks and govt. like some awareness programs for artisans, farmers, and agriculturists etc. EDP(entrepreneurship development programs) are conducted by EDI in the country where banks can participate and attract young budding entrepreneurs.

Money blocked in NPAs and loss assets:- There is a lot of money blocked in NPAs and loss assets on account of money lost in frauds and for which banks have already made provisions out of their incomes. These block of funds are in a way HARD AND A LITTLE TOUGH MINES of reserves for the banks. Any recovery from these heads adds to the income and overall health of the banks. These reserves must be tapped by effective recovery techniques (Management of NPAs -Some recovery techniques.) and maximum effort needs to be made to address further slippage to this category. (Bank’s NPAs. Causes and Remedies.)

Rod and reward:- Banks must not spare the rod wherever required and should not become a miser while promoting the talent and rewarding the performers.

Challenges make one more strong. Challenges provide an opportunity to face hard situations and increase one’s self-confidence. They provide an opportunity to prove your will and strength. A nation becomes strong only when it faces challenges and so are the banks. Banks have to take these challenges in the right perspective which ultimately will change their fate.

DWINDLING TRUST IN BANKS- 20 Steps/ Remedial measures Suggested

The deteriorating health of banks during the past couple of years has shaken the public confidence in the banking systems. The ever-increasing NPAs which at present are estimated to have touched a whopping figure of about Nine lakhs crores sends shivers down the spine of the stakeholders. Every year a fresh and heavy dose is added to the portfolio of bad loans and the trend doesn’t seem to have an end. This volcanic effect if not arrested, will wipe out the important agent of economy i.e. banking from the scene.

Another monster endangering the industry is the increasing incidences of big frauds in the banking sector in the recent years. It appears as if the bankers have surrendered before the fraudsters and the defaulters. The causes have already been discussed in earlier blogs Defects in bank audits and inspections and Bank’s NPAs. The faith and trust of the public in the banking sector is shaken badly. BANK IS THE OTHER NAME OF TRUST. PEOPLE KEEP MONEY WITH BANKS ON THE TRUST THAT THEY WILL GET GOOD RETURNS AND THEIR FUNDS WOULD REMAIN SAFE. However, with all said and done, the following 20 measures are suggested to regain public confidence in the banking sector:-

  1. Remove uncertainty in the banking operations once for all. Clean up the balance sheet and don’t keep any NPAs under the lid. Any evergreening or hiding of NPAs may be a short time solution but its effects are dangerous. BRING COMPLETE TRANSPARENCY IN THE OPERATIONS.
  2. Once done, you can start afresh and can put the progress on track and by moving slowly and cautiously you can regain the lost speed by putting in more vigor, experience, honesty, and hard work.
  3. With speed, you need to avoid accidents by choosing the right tracks and extra vigilance. Make internal inspection and controls more effective and purposeful rather than a mere formality. The concurrent audit is a very effective tool for inspections as it nips the evil in the bud. Make it more effective by allocating the job to experienced and hard working people. More stress should be on spot rectification rather than just pointing out and reporting. Any mistake or an irregularity if allowed to stay for some time takes roots and destroys the system, so spot rectification is need of the hour to stop the spread of the weed.
  4. At present, there seem to be too many inspections by different departments and controlling heads and some of which are an overlapping on one and the other. Too much of everything is bad including the number of inspections. The number doesn’t matter, it is the quality which counts. It is generally seen that inexperienced people and not so good performers are placed in the audit and inspection wings in the bank. This attitude needs to be totally changed, and efficient, knowledgeable and hardworking people should be allocated this job. Unless a serious thought is given to this issue and the inspection/audit deptt. is not strengthened, the chances of intrusions into the systems would continue, thereby adversely affecting the health of the banks.
  5. Specially trained staff should handle credit appraisals, sanctions, and disbursement of loans. Follow up of credit disbursed should be done on time and in a very effective manner. Inexperienced and untrained staff is prone to make mistakes, mishandle, and ultimately land the bank in trouble. Don’t jump into the fields about which you have no experience. Many banks went into trouble especially in the consortium financing because of their lack of adequate experience and blindly following the leader of the consortium.
  6. Controlling offices to be more vibrant and vigilant. Every tier through which the credit proposal moves including the board of directors, must add value to the proposal and share responsibility. No one can shirk responsibility on the pretext of being nontechnical in the respective field. This is a very dangerous attitude. People at the helm should be more serious, accountable and responsible.
  7. Banks should have experts as directors on the boards of the bank who could provide better guidance and direction based on their rich expertise and experience in their respective fields. Persons with political leanings/connections should as far as possible be not appointed as directors on the boards of the banks.
  8. A periodic rotation/shifting of people in the credit wing be done regularly as well as proper training and refresher courses be conducted for the persons handling credit in order to keep them abreast with day to day changes in the credit market, its procedures, and emerging risks.
  9. No proposal should be handled in a hurry. It may be processed expeditiously but not in a hurry. The prospective borrower is always in hurry, make him appreciate that even hurry takes some time. There have been instances when the highest body of the bank i.e. board of directors have complained that sufficient time was not provided for evaluating the agenda of the board meeting and some proposals were introduced as a supplementary agenda item on the day of the board meeting. How can one expect any value addition by any expert to such an item on the agenda?
  10. With the digital and online banking have taken roots, the interface interaction with the customers seem to have taken the back seat. Although the banks have effective complaint redressal systems yet face to face interaction is very important. Banks must conduct periodic customer meets at all levels and listen to the point of view and suggestions of customers and redress their grievances if any. The customer is the working capital of the bank. His suggestions must be evaluated and acted upon on merits of each case.
  11. Interaction with the staff by the executives at different levels helps in knowing their expectations from the bank as well as sharing the expectations of the management with the staff. This needs to be done periodically wherein individual staff targets can be set and evaluated. The concerns and policies of the bank must be shared with the staff as a family and they should be involved in the overall development of the institution and encouraged to meet individual targets. This can help banks to build good teams and induce a sense of responsibility, understanding, and a deep sense of belonging to the institution.
  12. The policy decisions of the board as well as of the regulators must be strictly followed in letter and spirit.
  13. Banks must learn from the past experience and avoid entering into waters whose depth and force of the flow is not known.
  14. Avoid wasteful and avoidable expenditure as you are under the constant public glare. This creates a lot of negative publicity for the institution.
  15. The seniors at all levels have to be a role model for others in the field of dedication, devotion, hard work, honesty, transparency, simplicity, no favoritism, and expenditure control.
  16. Banks should not spare the rod where ever required without any prejudice or bias. They should also be not miser in encouraging and promoting people to achieve the given targets.
  17. Banks must have a workable and sound whistleblower policy. People at the top need to be sensitive to even minor and feeble signals of misdeeds by anyone in the institution. They should read between the lines and make independent investigations where ever required.
  18. Banks should create and strengthen other layers of income from para-banking activities and also try to increase income from fee-based and non-fund based business.
  19. Banks, till date, had been enjoying the luxury of managing comfortable NIM (Net interest margin) which is a ratio of the difference in interest earned on assets and interest paid on deposits to the assets. Since there are a number of well-organized trade and industry association both at the local and national level who manage to get the interest on trade and industrial loans reduced, but unfortunately there is hardly any organized body representing the depositors who can watch their interests. The result is that depositors have no option than to accept whatever is offered to them. The consumers of the credit manage a good deal, banks manage a comfortable NIM, and all this adversely affects the returns for the depositors. This situation is fast changing with more awareness especially through the internet and the depositors are searching for the better green pastures in the shape of mutual funds and other instruments with better security and returns. The shift of capital to cryptocurrencies is a matter of concern for the banks. In such circumstances, the banks may find it a bit hard to mobilize funds except after sacrificing a good part of their NIM.
  20. In view of above banks need to make long-term strategies for managing funds and lay more stress on non-fund based and fee-based income. A more scientific asset liability management and better risk management strategy will go along way in increasing incomes of the banks. The funds locked in bad debts need a special focus of the top management. The recently passed insolvency and bankruptcy act is a boon for the secured creditors though with a cost yet very useful for recovery and cleaning the balance sheets of the banks. The suggestions put forth are not exclusive and the banks can take any other measure to improve its working and image in the overall interests of all the stakeholders and also in order to regain the lost ground.

DEFECTS IN BANK AUDITS AND INSPECTIONS

These days most of the Banks are suffering from the problems of Bad Loan around the world especially the Asian countries. As a result of globalization, any failure in banking systems in any part of the globe affects the banks in other countries too. The subprime lending in American banks had its effects in the banking sectors across the globe.

The recent trend of increasing NPAs and frauds happening in the banking sector is a serious matter which has shaken the confidence of not only of the depositors and other stakeholders but also that of the general public in the banking institutions.

This trend needs to be curbed in order to improve the confidence of the public in the banking systems. The reasons for loans becoming NPA is already discussed in the blog Bank’s NPAs. Causes and Remedies. The reasons for frauds may be:-

  • Due to staff negligence/Connivance.
  • Lack of proper supervision and controls.
  • Lack of experience, knowledge and adequate training for the staff.
  • The absence of corporate governance GOOD GOVERNANCE from the banking systems.

Most of the frauds have happened due to the staff connivance and it appears as if these were like a consensual rape. Unless there are strict deterrents in place, the frauds will continue to happen. Any laxity in taking strict actions against the delinquent staff of all cadres, overtly or covertly involved in the frauds will continue encouraging them to commit more frauds. Many big and small frauds have happened in the past, but hardly there is any action against the perpetrators, more so, in the higher cadres. Only a few of the small fish is caught in the net and the big ones are allowed to escape. All those who are involved in the crime need to be named, shamed and severely punished. There should be no place for the dishonest people in the financial sector as they not only spoil the sacred institutions by themselves but also induce others to follow the dirty trend.

However, merely Staff is not responsible for all the deceit in the system, there are many problems with the audits and inspections in the banking system too. The staff hardly gets time to attend or go through all the voluminous audit and inspection reports. Many inspections are just repetition of each other and need to be done away with. Nothing can be achieved by repeating the inspections as a mere formality. Only effective inspections and audits should be carried out. At present, the banks go for following audits and inspections.

(A). Internal.

Internal audits and inspections are carried out by banks own staff or by an independent party for checking their health as well as to analyze the operational efficiency. These are:-

  • Internal inspections mostly conducted by the bank staff only.
  • The concurrent audit carried out daily by specially engaged concurrent auditors.
  • Snap inspections by all senior executives every month.
  • Credit audit and stock audits.
  • Revenue audit.
  • Information system audit.
  • Management audit.
  • Forensic audit.
  • Compliance audit.

(B) Statutory.

Statutory audits are conducted by the qualified chartered accountants duly approved by the Reserve Bank Of India. These mandatory audits form the base for the banks yearly balance sheets to be placed before the shareholders in the annual general meeting for approval. The purpose of these audits is to report the state of the bank’s finances and accounts to the Government. These are of two types

  • Tax audit.
  • Company audit/ Financial audit.

(C). RBI audit.

It is conducted by the auditors/Inspectors of RBI in order to ensure that the banks are working within the norms prescribed by the banking regulation act.

In spite of all these audits, financial frauds are still happening unabated. Too many audits are becoming a headache for the bankers. They hardly get time to look into The audit reports seriously and take remedial steps. ‘Too much of everything is bad’ is an old adage which is truer in respect of the audits of banks.

Following measures are suggested for improvement in the audit and inspection systems in the banks:-

(A). The concurrent audit on real-time bases should be made more effective by allotting the job to professionals and they should be made accountable for any lapse that may remain in the day to day transactions. The concurrent audit is the most suitable solution because when a lapse happens and if not detected immediately may prove to be fatal afterward.

(B). Statutory audit is the domain of The Reserve Bank Of India and is carried out by the RBI approved qualified chartered accountants against a fee to be paid by the banks directly to the Chartered Accountants. Anybody is bound to be loyal to his paymaster and to none else. Banks can get their balance sheets structured by putting pressure on these CAs. The fees should be paid to the auditors by the RBI after successful completion of the audit and after recovering the same from the concerned banks. The  CAs would then not oblige the banks, instead, they will remain true and loyal to the RBI instead to the Banks.

(C). Recently the World Bank has advised the Indian Government to give more teeth to the Reserve Bank. RBI auditors are very professional but the audits reports are not properly followed and strict actions are not taken. RBI should make the Boards and the top bosses in the banks accountable for any laxity in the corporate governance of the respective banks.

(D). Too many audits and inspections consume the too much working time of the branch staff and they get fed up by repeated audits and tend to ignore the same. Some of the useless inspections may, therefore, need to be done away with.

(E). Banks are doing everything except banking. They should not enter into the domains not meant for them. They are made to go for pennies and lose pounds. Banking is the backbone of the country’s economy so they must be allowed to focus only on their field of activity.

(F). Well trained, efficient and experienced staff should be posted in the audit and inspection units of the banks. Generally, those who fit nowhere in the system or don’t compromise with their bosses are posted in the inspections department. This vital organ of banking has been ignored but it needs to be strengthened. As a matter of policy, it should be made mandatory for every upcoming officer to give at least one tenor of service in this department for promotion to a higher grade because one learns a lot in this department.

Banks, therefore need to lay more stress on corporate governance GOOD GOVERNANCE, make inspection wings more active, vibrant and efficient. ‘When the old cock crows the young one learns’, the senior functionaries should, therefore, create a self-example of honesty, dedication, and sense of belonging to the institution SENSE OF BELONGING. Unless some harsh measures are not taken to restore public confidence, it is feared that the future of banks may remain uncertain. The Central Government and Central Bank need to make changes in the policies for the banks for bringing transparency in their functioning.

HOW AND WHERE TO INVEST SAVINGS

THE YIELD OR THE RETURN ON INVESTMENT IS DIRECTLY PROPORTIONAL TO THE RISK YOU TAKE. SO YOU SHOULD TAKE A WELL CALCULATED RISK AND IT DEPENDS UPON YOUR OWN JUDGEMENT AS TO HOW MUCH RISK YOU ARE PREPARED TO TAKE. PLEASE AVOID TAKING HIGH RISKS UNLESS YOU ATTAIN EXPERTISE IN MARKET FORCES

Once you are in the habit of saving, you should start investing in different schemes of different financial institutions. Four things are to be taken into consideration before deciding to park your saved funds in different schemes. Financial institutions/mutual fund companies have all types of tailor-made schemes for different maturities and you can choose those which suit your requirements. The issues to be considered before investment are:-

  • Safety of your funds.
  • The risk involved or quantum of risk you are prepared to take for your investment.
  • The rate of growth of your invested funds.
  • The maturity period of scheme you intend to invest in.

You may have bulk funds available or a regular monthly salary/income. Options available for investment of bulk funds in order of safety and risk are:

  • Sovereign Gold bonds.
  • Real estate.
  • Banks term deposits.
  • Debt linked instruments of the reputed mutual fund company.
  • Equity-linked instruments of the reputed mutual fund company.

For savings out of regular monthly salary/income, the available options are:

  • Saving bank account of banks
  • Recurring deposit account of banks
  • Debt linked SIP(Systematic investment plan) of the reputed mutual fund company.
  • Equity-linked SIP of the reputed mutual fund company.

THE GOLDEN RULE OF INVESTMENT

THE YIELD OR THE RETURN ON INVESTMENT IS DIRECTLY PROPORTIONAL TO THE RISK YOU TAKE. SO YOU SHOULD TAKE A WELL CALCULATED RISK AND IT DEPENDS UPON YOUR OWN JUDGEMENT AS TO HOW MUCH RISK YOU ARE PREPARED TO TAKE. PLEASE AVOID TAKING HIGH RISKS UNLESS YOU ATTAIN EXPERTISE IN MARKET FORCES.

Then there are high-risk options such as Equity market. It is always advisable to avoid investment in equity market directly unless you fully understand the nitty-gritty of the Equity market as well as the movement of local as well as world economies and political climates. Investment in the equity market is advised through equity-linked mutual fund schemes.

Ponzi schemes promising very high returns don’t have any sound base and support systems and people have lost their fortunes in such schemes. Don’t get lured by such schemes.

RECENTLY BITCOINS HAVE COME INTO GLOBAL MARKET WHERE PEOPLE HAVE ALTHOUGH MADE EXTORBITANT PROFITS YET IT IS HIGHLY RISKY TO INVEST IN BITCOINS BECAUSE THEY DO NOT HAVE ANY BASE. NO GOVT. OF ANY COUNTRY HAS RECOGNISED BITCOIN AS A SOUND INVESTMENT.
IT IS CRYPTOCURRENCY HAVING NO SUPPORT. IT’S BUBBLE CAN BURST ANY TIME RESULTING IN VERY HEAVY LOSSES, SO DONT BE LURED BY SUCH RISKY INVESTMENTS.

60% of your net monthly saving is advised to be invested in reputed mutual fund companies in the ratio of 50% in debt and 50% in equity-linked SIP or Recurring deposit scheme of banks for a period of 15 years. 40% of net saving every month be kept in saving bank account. Amount so accumulated in this account be converted into term deposit of 50 thousand or one lac or 5 lac as the case may be for the period of your of your choice. Keep on renewing the term deposits on due dates or invest in any high yielding scheme of financial institutions. You should not keep all eggs in one basket.

And above all, there is an investment which we should never forget to make whenever we receive an income or salary and that investment is CHARITY for a good cause. The amount of investment/donation depends upon your own will; no bindings. However, some religions have mandated a percentage of income as charity, like Sikhism, which advice to donate 10% of your income in the charity called DASWANT and in Islam the limit is 2.5% called ZAQAAT. Charity purifies your income provided it is out of honest means, and purely organic in nature. Any income out of dishonest means, corruption, cheating or any illegal means is inorganic in nature which may infect your organic and healthy income. No charity of whatsoever amount out of such income can purify your wealth. No one can get peace of mind in life out of such income and it always leads to problems and problems only.
Slowly and steadily you will accumulate enough wealth to take care of your future needs.

Till you are in active service/earning stage, you should continue parking your savings in growth schemes and meet your social and moral responsibilities. And once you retire, better keep saved funds in monthly yielding schemes of financial institutions to augment your monthly income and live a peaceful life with financial independence.

GOOD GOVERNANCE

Governance is a set of processes, policies, and actions which any government or an organization takes for overall and equal development of its peoples and of all the stakeholders. Every segment of an organization or department of Government, State or Central, which is responsible to run the government or an organization has to ensure that all the stakeholders are getting equally benefited and that too in time. They have to ensure that the developmental projects are executed in time, people get justice in time, and life becomes easier with every passing day. A good governance ensures equal distribution of resources amongst all section and categories of the stakeholders.

The tests of the good governance are:-

  • Whether there is a visible improvement in the living standards of the stakeholders.
  • Whether there is a comparative decrease in time in delivery of services in all sectors.
  • Has the gap between expected services and delivery of services narrowed down? If it has, it is good, but in case it has widened it is bad governance.
  • Is the gap between the highest income and lowest income decreasing? If decreasing it is a result of good governance if widening it is otherwise.
  • Are all the stakeholders happy to carry on with existing governing systems or are fed up with that and want a change?

Is this really happening on the ground? The promises made, the policies announced, and the rules made, are only on the papers.Nothing much is done on the ground.

The stakeholders have to decide for themselves whether they are getting the benefits of good governance or not.

It is observed that those at the helm of affairs bother more for themselves and less for the stakeholders, the result is total chaos in the governing system.
This happens due to lack of accountability, nonseriousness in accountability or poor accountability and absence of deterrence. If we look at what is happening on the ground we find that those responsible for providing good governance and ensure equi-distribution of resources among all are bothered for a multifold increase in their own incomes and facilities, leaving the stakeholders to fight for the peanuts.

The projects of national importance are delayed by a period which is much more than the period projected for completion of the same. The developmental schemes for the masses are only on papers and very little reaches the ground. There is hardly any visible change or any improvement in the living standards of the people in the weaker and neglected sections of the society even after their three generations, and the gap between the poor and the rich has widened to an unimaginable extent. Delivery of justice has not picked speed in spite of so much modernization and it seems as if it has been left to the fate of the masses. The graph of incidences of frauds, crimes, corruption, and intolerance is on the rise. The possessions amassed out of corruption and the crime are now being recognized in the society with the esteem rather with disregard. This is a very disturbing attitude of the society as a whole.

The tolerance and brotherhood amongst different communities are decreasing and need to be taken seriously by the concerned governments, all political parties, religious heads, and organizations as well as by all the stakeholders. All religions preach peace, brotherhood, and love, as all of us, are basically sons of the same universal Father, to which we call by different names; God, Ishwar, Parmatma, Allah, Khuda, Waheguru etc. All of us believe that there is only one Supreme Being and we all are His children. We have therefore to find out the root cause of hate and intolerance, identify the people responsible for spreading the same and ignore them. This dirty trend needs to be discouraged by all concerned at all levels.

There is, however, no dearth of people of integrity, who keep on working tirelessly for the welfare of mankind. There is definitely a silver-lining behind the black clouds. These people are working tirelessly to improve governance and we need to encourage and support them in their endeavor and not to lose hope. Not only the people at the helm of affairs but everyone associated with governance has to work in a missionary mode to improve the lot of the children of the lesser God. THERE IS NO OTHER WAY OUT. Everyone has to understand the responsibility and work with dedication. Corporate Social Responsibility or Governmental Social Responsibility is not sufficient unless there is a sound Individual Social Responsibility in place.