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Raghuram Rajan on the Humongous Corporate Debt Write Off

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V.Balasubramani

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Raghuram Rajan on the Humongous Corporate Debt Write Off
Published on Jun 9, 2015

RBI Governor Raghuram Rajan on how the common man i.e the tax payer's money is being used to write off corporate debts to the tune of 1.61 lakh crores or 1.27% of country's GDP which is equivalent to the money that could enable over 1.5 million people to send their children to get a full university degree from top private universities of India.

Source: https://www.youtube.com/watch?v=wUTxqberFOM
 
11781619_1659988964259734_2238283141313163885_n.jpg

Source: face book
 
This Corporate write-offs was a UPA phenomenon to start with. Why then was Raghuram Rajan silent all along?
 
11781619_1659988964259734_2238283141313163885_n.jpg

Source: face book

The impression gained and conveyed is patently wrong. There is no tax payers money involved in the write off by Banks. It is not as if you and I are taxed and the government's tax revenue goes directly to the Banks so that they can write off the loans to corporates.

Banks are commercial entities. They earn profit from the business they do. Profit and loss are part of the business operations. If you do business efficiently you earn profit. If you manage the business poorly/inefficiently you end up with loss. considering the size of the capital base and the size of their assets and liabilities, the write offs are within manageable limits for the individual banks. And that is the reason they still survive and open every day for business. If a bank's loss due to write offs are so large that it is larger than the entity's net worth(capital plus the free reserves), the bank will become bankrupt, close the business and law will take its course to close down the bank.

Government being the owner (means Govt holds the largest number of shares in the banking company concerned) infuses capital whenever it thinks capital base needs strengthening. The public also owns a substantial portion of the shareholding of these banks though they are not as large as the holdings of the Government. That is the reason why these banks are called public sector banks.

Banks are not another department of the Government like the health Department or education Department. And Govt does not make budget provisions every year for the Banks. When it makes a provision it is to infuse additional capital. Banks pay the Government every year dividend on the capital owned. The dividend earned over the years is not small.

Banks earn profit from their operations and make every year a provision (setting aside) from the profit for the likely losses due to advances going bad. This can be called the cushion for shock. If an advance goes bad these provisions are used to write off.

While the citizens have a right to question the way banks are managed, they can not complain that their tax money goes to businessmen via the banks.
 
The impression gained and conveyed is patently wrong. There is no tax payers money involved in the write off by Banks. It is not as if you and I are taxed and the government's tax revenue goes directly to the Banks so that they can write off the loans to corporates.

Banks are commercial entities. They earn profit from the business they do. Profit and loss are part of the business operations. If you do business efficiently you earn profit. If you manage the business poorly/inefficiently you end up with loss. considering the size of the capital base and the size of their assets and liabilities, the write offs are within manageable limits for the individual banks. And that is the reason they still survive and open every day for business. If a bank's loss due to write offs are so large that it is larger than the entity's net worth(capital plus the free reserves), the bank will become bankrupt, close the business and law will take its course to close down the bank.

Government being the owner (means Govt holds the largest number of shares in the banking company concerned) infuses capital whenever it thinks capital base needs strengthening. The public also owns a substantial portion of the shareholding of these banks though they are not as large as the holdings of the Government. That is the reason why these banks are called public sector banks.

Banks are not another department of the Government like the health Department or education Department. And Govt does not make budget provisions every year for the Banks. When it makes a provision it is to infuse additional capital. Banks pay the Government every year dividend on the capital owned. The dividend earned over the years is not small.

Banks earn profit from their operations and make every year a provision (setting aside) from the profit for the likely losses due to advances going bad. This can be called the cushion for shock. If an advance goes bad these provisions are used to write off.

While the citizens have a right to question the way banks are managed, they can not complain that their tax money goes to businessmen via the banks.
Of course it is not Tax payer's money. O .K. It is share holder's stake. Let it be depositor's Money recycled as lending as per adherence to Credit/Deposit Ratio Stipulation of RBI.
Whatever it maybe.

What RBI Governor wanted to impress impliedly to the persons cocerned are:
The debts should not be written off as a matter of routine.The persons involved in sanctioning process of writing of Debts, are aware of that Debts should be written off after due verification staff accountability like lapses, malafide intention on the part of the various persons who were all involved in various stages of the Corporate advances(loans), (recommendation stage of the proposal, valuing the securities offered as collateral before grant of loan, sanctioning authority exercising due diligence,various stages of follow up of the loan,like inspection,renewal/enhancement of limit, latest value of securities etc.
On many occasions bigger loans would be written off in haste for reasons better known to the empowered only.Many intricacies could not be narrated in forum.
It is not .......my money, your money but public money... anybody can
question. but will go onlyinto deaf years.
 
There is something casual about debt write off . There is neither bank accountablity or that of the borrowing companies. It is taken for granted that nothing will happen to

the companies defaulting or the bank staff.

Most small and midsize companies cook up their balance sheets with some chartered accountants helping them .

Even large family owned companies are known to reserve some companies for showing their losses .the large companies get easy access to credit on a phone call

from the powers that be.Have you wondered why only public sector banks alone have huge NPAs . Has any corporate bigwig gone to jail for loan default ?How many

have had their properties attached.?. Private players in banking sector immediately set debt recovery agents on simple middle class to recover small loans thru arm

twisting and violence threats. Only recently Supreme court jailed the sahara chief [though not a bank fraud] for duping and not returning money of small depositers.

banks can also act tough on corporates. Only they lack the will and the powers.Whose money is it anyway?

In Public sector banks it is mostly govt money. Normal public has nothing to do with NPAs. definitely the companies are to be blamed for looting public money.

If the penalties for defaults are severe , the corporates will behave better.
 
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hi

these corporates are main donors for alll parties....so any govt in power has to dance according to their tune....
 
hi

these corporates are main donors for alll parties....so any govt in power has to dance according to their tune....

Yes. Corporates might have influence with all major political parties. Some times they may be benamies of Politicians.Banks would be mute to all such occasions.
 
Rs 1 lakh crore bad loans of corporates written off: RBI

Excerpts:

"In the last 13 years, banks have written off 1 lakh crore and 95% of these are large loans. Everyone talks of the farm loan write-off, but it is the medium and large enterprises segment that has a 50% share in NPAs," said Chakrabarty.

/QUOTE]

Rs 1 lakh crore bad loans of corporates written off: RBI

This amount did not include Agricultural Loans and loans to SME sector ( Small and Medium Enterprises). Agl & S M E loans would have been insured with DICGC (Deposit and Credit Guarantee Corporation of India.Banks may get 75% of the out-standings as insurance claim and the balance 25% would be written off.
In case of Corporate Loans i.e. to C & I - Sector (Companies and Institutions) -Banks could not have any insurance cover. After realising the collateral securities available, by selling in public auction, Banks would write off the short falls.
 
Step one is transparency. Banks must put that information in public domain - amount of loan written off, debtor, reason for waiver and credit rating of the company or individual. Many a time a fresh loan is given to repay old loan to show the debtor in good light. Recently ICICI transferred a 500 crore debt liability of kingfisher to another bank for 150 crores and settled its balance sheet; net loss only 350 crores.
 
Step one is transparency. Banks must put that information in public domain - amount of loan written off, debtor, reason for waiver and credit rating of the company or individual. Many a time a fresh loan is given to repay old loan to show the debtor in good light. Recently ICICI transferred a 500 crore debt liability of kingfisher to another bank for 150 crores and settled its balance sheet; net loss only 350 crores.

Transparency is there in Balance Sheet. The details of amount written off are furnished in audited financial results of the Banks. If we want more details we can call for from the banks under R T I.

In all existing loans for working capital, sanction of loan granted, are valid for one year only. After one year again balance sheet, financial strength are analysed and limit of loan is re sanctioned. This is called " Renewal Limit" THIS RENEWAL OF LIMIT IS AS GOOD AS A NEW LOAN SANCTIONED, FOR STAFF ACCOUNTABILITY PURPOSE.

Taking over of Loans of one Bank by another Bank is permitted by RBI. It is like selling goods in market. One BanK by selling loan, get liquidity; the buying Bank invest its idle funds.Buying Bank will not take much risk. Buy only little bit above realisable value of collateral securities available.Lot of RBI's laid down procedures & norms are there.
 
Of course it is not Tax payer's money. O .K. It is share holder's stake. Let it be depositor's Money recycled as lending as per adherence to Credit/Deposit Ratio Stipulation of RBI.
Whatever it maybe.

What RBI Governor wanted to impress impliedly to the persons cocerned are:
The debts should not be written off as a matter of routine.The persons involved in sanctioning process of writing of Debts, are aware of that Debts should be written off after due verification staff accountability like lapses, malafide intention on the part of the various persons who were all involved in various stages of the Corporate advances(loans), (recommendation stage of the proposal, valuing the securities offered as collateral before grant of loan, sanctioning authority exercising due diligence,various stages of follow up of the loan,like inspection,renewal/enhancement of limit, latest value of securities etc.
On many occasions bigger loans would be written off in haste for reasons better known to the empowered only.Many intricacies could not be narrated in forum.
It is not .......my money, your money but public money... anybody can
question. but will go onlyinto deaf years.

Banks generally do not write off debts whimsically.

A debt which has to be written off may be carried in the books through time and that will be a postponement of writing off to a future date.

Indian Bankruptcy laws are draconian. When an Industrial Unit becomes non-viable for operation, it should be quickly put on the block and stake holders should be able to get rateable distribution quickly. But that does not happen easily in this country. We have every one jumping into the fray--from trade unions, politicians and take-over specialists to plain brokers. So the unit is named "sick' (sic) and allowed to remain in the books of the bank. One good thing that has happened after the Basle norms are implemented is that the joke of these "assets" earning interest to the bank has stopped.

The committee system takes care of the appraisal discipline.

In the given circumstances the accountability exercise usually becomes a witch hunting expedition.

Solution lies in:

1. allowing sick industrial units to die a quick death by amending the bankruptcy laws.

2. Bringing in external agencies to assess failure of banks in managing the asset and taking actions against the managements concerned.

3. Making the Auditors of the banks and the industrial units accountable for hiding the facts/manipulating figures etc.,
 
Of Rs 7,000 crore lent to Kingfisher, banks can now recover just Rs 6 crore

As Vijay Mallya and his son Siddharth sit with a Rs 21 crore purse and seven cricketers he can sell to make some money in the IPL auction, India's public sector banks are struggling to recover even a fraction of their Rs 7000-crore loans from Mallya's grounded Kingfisher Airlines.

As Vijay Mallya and his son Siddharth sit with a Rs 21 crore purse and seven cricketers he can sell to make some money in the IPL auction, India's public sector banks are struggling to recover even a fraction of their Rs 7000-crore loans from Mallya's grounded Kingfisher Airlines.

Documents, forensic reports and accounts of people from across the world studied by dna reveal that members of the 17-bank consortium of lenders led by SBI may never be able to recover the money loaned to Mallya's airline.

Read more at: http://www.dnaindia.com/money/repor...banks-can-now-recover-just-rs-6-crore-2061256
 
A story about a mighty King and a sparrow is usually told; how the sparrow makes the king's life miserable by its utterings, etc. Similarly, banks in India at least, are in a catch-22 situation in so far as corporate lendings are concerned. In real truth, people's hard earned moneys are "swaha-fied" by corporates, the more politically influential the company, the more it swallows. All these moneys will never, never come back to the banks or to the original depositors. Everyone around, including the RBI governors of all times, know this fully well. What the bank managements, RBI, Finance Ministry, et al have been striving all these decades is how best to conceal this stinking truth and how much scent or perfume/s to spray over that stink in order that the man-in-the street does not come to know the truth.
 
Of Rs 7,000 crore lent to Kingfisher, banks can now recover just Rs 6 crore

As Vijay Mallya and his son Siddharth sit with a Rs 21 crore purse and seven cricketers he can sell to make some money in the IPL auction, India's public sector banks are struggling to recover even a fraction of their Rs 7000-crore loans from Mallya's grounded Kingfisher Airlines.

As Vijay Mallya and his son Siddharth sit with a Rs 21 crore purse and seven cricketers he can sell to make some money in the IPL auction, India's public sector banks are struggling to recover even a fraction of their Rs 7000-crore loans from Mallya's grounded Kingfisher Airlines.

Documents, forensic reports and accounts of people from across the world studied by dna reveal that members of the 17-bank consortium of lenders led by SBI may never be able to recover the money loaned to Mallya's airline.
/QUOTE]
Kingfisher people knows how to deal with politicians. They, not only evading repayment of dues to the Banks but also probably setting off the profits of sister companies with the loss of the Kingfisher and would be paying Corporate Tax for the net income.
 
A story about a mighty King and a sparrow is usually told; how the sparrow makes the king's life miserable by its utterings, etc. Similarly, banks in India at least, are in a catch-22 situation in so far as corporate lendings are concerned. In real truth, people's hard earned moneys are "swaha-fied" by corporates, the more politically influential the company, the more it swallows. All these moneys will never, never come back to the banks or to the original depositors. Everyone around, including the RBI governors of all times, know this fully well. What the bank managements, RBI, Finance Ministry, et al have been striving all these decades is how best to conceal this stinking truth and how much scent or perfume/s to spray over that stink in order that the man-in-the street does not come to know the truth.

Chairman of Public Sector Banks are appointed / elevated to that category only by Finance Ministry , Govt. of India.

When Pranab was the Finance Minister,a person of West Bengal origin was given initially double promotion and then elevated to the position of the Chairman of a leading Public Sector Bank, bypassing 3 well deserved seniors.

Position is as such, there is no meaning in blaming Banks. Only corruptive politicians stage manage the shows.
 
Banks generally do not write off debts whimsically.

A debt which has to be written off may be carried in the books through time and that will be a postponement of writing off to a future date.

Indian Bankruptcy laws are draconian. When an Industrial Unit becomes non-viable for operation, it should be quickly put on the block and stake holders should be able to get rateable distribution quickly. But that does not happen easily in this country. We have every one jumping into the fray--from trade unions, politicians and take-over specialists to plain brokers. So the unit is named "sick' (sic) and allowed to remain in the books of the bank. One good thing that has happened after the Basle norms are implemented is that the joke of these "assets" earning interest to the bank has stopped.

The committee system takes care of the appraisal discipline.

In the given circumstances the accountability exercise usually becomes a witch hunting expedition.

Solution lies in:

1. allowing sick industrial units to die a quick death by amending the bankruptcy laws.

2. Bringing in external agencies to assess failure of banks in managing the asset and taking actions against the managements concerned.

3. Making the Auditors of the banks and the industrial units accountable for hiding the facts/manipulating figures etc.,
Today Raghuramrajan has come out with the view that some loans becoming NPAs should not limit banks from lending more to firms on NPA list ,if marginal finance

can make them performing assets.similarly those units which are sick and cannot be salvaged should be quickly written off instead of prolonging the agony.

While some sectors like steel or power sectors are facing a genuine crisis ,others are taking advantage of the economic scenario to loot banks in public sector
 
Today Raghuramrajan has come out with the view that some loans becoming NPAs should not limit banks from lending more to firms on NPA list ,if marginal finance

can make them performing assets.similarly those units which are sick and cannot be salvaged should be quickly written off instead of prolonging the agony.

While some sectors like steel or power sectors are facing a genuine crisis ,others are taking advantage of the economic scenario to loot banks in public sector

If the loan a/c of an Industry becomes NPA and shows signs of sick grey, infusing funds flow by way of marginal finance with a view to revive the unit, is a welcome measure as we give treatment to a sick person for his survival.

If the Industry is so sick and shows signs of no revival ( continuously incurring loss in consecutive three years and the balance sheet shows that more than 50% capital +free reserves are eroded ) financing further is amount to throwing good money after bad money.It is like giving treatment to a dead man.

Perhaps, this is what Mr. Raghuramrajan wanted to stress.
 
Rajan warns of action against banks hiding true NPA numbers

Concerned over banks hiding their actual NPA numbers, RBI Governor Raghuram Rajan on Tuesday said the central bank is "increasingly turning towards taking action" on such divergences.

The Reserve Bank closely monitors NPA numbers declared by banks and pulls them up if there are any divergences, Rajan said, without disclosing specific cases or actions.

Stating that RBI is less keen on providing forbearance going ahead to the companies with huge debt burden, Rajan said, "You need to do what you need to do. Take the medicine. Pushing up in the future is going to create bigger problem."

about banks hiding their true NPA levels, the central bank chief said, "We inspect the banks regularly and we figure it out if something that is not a standard asset is not declared an NPA. These are called divergences.

"In some banks, there are more divergences than others, in which case they have a pretty strong discussion with deputy governor SS Mundra who hauls them up for doing what they did."

Read more at: http://www.rediff.com/business/repo...st-banks-hiding-true-npa-numbers/20150804.htm
 
Rajan warns of action against banks hiding true NPA numbers

Concerned over banks hiding their actual NPA numbers, RBI Governor Raghuram Rajan on Tuesday said the central bank is "increasingly turning towards taking action" on such divergences.

The Reserve Bank closely monitors NPA numbers declared by banks and pulls them up if there are any divergences, Rajan said, without disclosing specific cases or actions.

Stating that RBI is less keen on providing forbearance going ahead to the companies with huge debt burden, Rajan said, "You need to do what you need to do. Take the medicine. Pushing up in the future is going to create bigger problem."

about banks hiding their true NPA levels, the central bank chief said, "We inspect the banks regularly and we figure it out if something that is not a standard asset is not declared an NPA. These are called divergences.

"In some banks, there are more divergences than others, in which case they have a pretty strong discussion with deputy governor SS Mundra who hauls them up for doing what they did."

Read more at: http://www.rediff.com/business/repo...st-banks-hiding-true-npa-numbers/20150804.htm

Ordinarily in Core Banking Solutions, nothing could be hidden over all.
All bigger size & medium size branches and selected low business branches ...of Banks are subjected to external Audit (by Charted Accountants) in the first week of April each year to verify the Profit and Loss account ,Asset classification, inspect industries, verify stocks in random etc. In the process the auditor verifies all bigger loans individually with documents and could easily find out the misclassification, if any in the annual Returns / Statements of the branches generated from the system.The data in the annual Returns, forms the basis of Balance Sheet of the Bank as a whole.

As the high level of NPAs may reflect in the personal Performance Appraisal of the Branch Heads/ Regional Heads.... at times they may try to suppress by inaccurate data entries in the system and host the auditors star hotels and allure them with valuable gifts.
 
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