Banks need eternal vigilance

| | in Oped

When mediocrity rises to the top, it impacts the quality of human resource. We need to reform the banking sector and end sinecures

The Reserve Bank of India (RBI) took up the massive Asset Quality Review (AQR) to unearth more  non-performing assets (NPA) in banks which were marked as income generating assets for a long time. After the AQR, the NPA soared up from 4.62 per cent in 2014-15 to an alarming 10.4 per cent in December 2017.

In fact, the solution to NPA lies in grooming silent, committed, tech-savvy and honest chief executive officers, inspectors, auditors, information system auditors and staff with moral courage and a sense of purpose to serve social good as well as banking business.

Public Sector Banks now operate in the core banking environment which needs highly skilled computer-savvy personnel. The biggest problem before the Public Sector Banks is that a majority of the bank employees above 55 years have migrated to a computer environment and find it difficult to monitor, review and analyse so many bank accounts on a regular basis.

If the migrated person holds higher position in banks, he always has a tough time in monitoring loan portfolios. Here, the entire rank and files of the bank have to work in tandem while reviewing and monitoring loan portfolios as well as investments.

 Banks will never enter into the NPA trap if it puts in place, a dedicated review committee and monitoring team, who can carefully examine the credit cycle. A majority of borrowers do not cheat banks. It is the tech-savvy educated big borrowers who dupe banks from time to time in a sophisticated operation. The worse thing is that they create trust deficit between banks and borrowers. The Fugitive Economic Offender Ordinance 2018, is a welcome step to auction the offenders' assets and repay the bank loans.

The National Democratic Alliance (NDA) Government is willing to show zero tolerance to big wilful defaulters who have caused irreparable damage to the economy, society and endangered the future of millions of depositors. 

Genuine borrowers suffer due to these defaulters as banks insist for strict Know Your Customer (KYC) compliance for small loans also.  This situation chases away a large number of genuine borrowers from banks to informal lenders to take loan at an exorbitant rate of interest with less processing time.

Banks should insist on KYC for high risk category customers and in those accounts where suspicious transactions occur. When there are so many departments and agencies to examine the root of transactions in banks, what is the need of asking for so many KYC documents? More than KYC, it is the eternal vigilance which can protect banks. Majority of Indians deposit their money in banks to live on their interest income. They pay tax deducted at source (TDS) on interest income. Banks use the deposit for doing business and earn profit. Depositors can't cheat banks. It is the big borrowers who develop ingenious techniques to cheat the banks. 

Majority of big bank frauds originate from Hyderabad. The Fugitive Economic Offender Ordinance 2018 should quicken the process of recovery of bank loans from offenders. It is also high time to amend the Banking Regulation Act 1949, to give more teeth to the RBI so that it can remove the inefficient board members, dissolve the board and replace chief executive officers before banks plunge into more crises. Let banks develop their own strategy, intelligence back up and decide which sector they should finance.

The creation of bubbles by political market forces is the real threat to the economy and banks. Bubbles in the economy gets its winds from evil marketing geniuses who lure banks to lend more than they can recover. Over decades, education, realty, mining, steel, infrastructure, aviation and energy sectors have shown inflated credit potential. NPA in these sectors are very high.    

An efficient board can warn banks against bubble finance. This area should be totally freed from political interference as politically inclined board members have caused immense damage to the banking sector. While selecting the chief executive officers of banks, there is a need to thoroughly examine the candidates' real contribution from his official notes in the last five years. His approach, knowledge depth and attitude can be judged from the words he put on paper and the words he speaks. 

Lucrative post retirement assignments should be scrapped as it let bankers appease politicians. In the changing environment, the Public Sector Banks need to revamp their human resource policy.  Mediocrity is one of the main reasons of NPA growth in banks. Knowledge, efficiency, moral courage, creativity and innovation are the core strengths of an institution which should not be viewed as arrogance and a negative approach.

When mediocrity rises to the top, it impacts the quality of human resources. We need to reform the banking sector and end sinecures. Internal promotion in banks should be based on pure merit and on the basis of strict written tests and interview conducted by external agencies. If we seriously want a better India without poverty, we need to reform the banking sector which can create citizens who can live beyond their personal interest to serve the country.

(The writer is a freelance commentator)

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