BAD LOANS SPOIL BANKS GROWTH

first_imgMany may be known or may not be known that most of the Banks like Canara Bank, Syndicate Bank, Vijaya Bank, Corporation Bank, State Bank of Mysore, Karnataka Bank and some financial Institutions are originated from Karnataka mainly of South Kanara who are pioneer in Banking Industry. In the beginning of  19th century, the opening of Banks have taken place in the county. The purpose of opening of Banks just to encourage people for savings of money in Banks for their future livelihood. In turn, the banks utilised such savings/deposits of money for lending purpose to business, enterprises and small scale industries at little enhanced rate of interest. The interest earned from lending loan to enterprises /industries by the banks will be utilised to give little interest to savings/deposits holders and the balance was used by the bank for Administrative expenses after keeping some portion of funds as reserve in the interest of Banks. After many years of operations of business transactions by the Banks and many schemes of FDs, extending loan facilities for vehicle advance and real estate business, the banks able to expand their business transactions throughout India to the maximum extent.  In course of time, due to the Banks financial displine, all most all banks achieved their goals and stood with sound finance in the Banks. The system of private controlling of Banks by the people who are interested to expend the business stopped by the Centre Legislation in 1969 on the ground that the banks failed to support its socio-economic objectives and thought to take over the banks through legislation by the Government of India.In this way to implement the socio-economic objectives, the Government of India through the Banking Companies Ordinance, 1969 was Nationalised 14 largest Commercial Banks  on 19 July, 1969 by than Prime Minister Smt.Indira Gandhi to streamline the Adminstration of the Banks. The purpose of Nationalization of banks to divert the finance to Industries for industrialisation and also for rural areas towards agriculture revolution. The purpose of nationalisation of banks served to certain extent by the Government of India due to honest and efficient management of finance by the officials of Banks. The situation of finance of the PSBs remained strong till 1979. Further the reduction of commencement of NPAs (Non-performance Assets)  started from 1980s under Congress rule due to LOAN MELAS introduced under UPA rule. A few main reasons for the loss of NPAs of Banks – 1. All most all PSBs asked to implemented the loan melas; 2. Loan melas conducted by banks for small business/enterprises and farmers ; 3. Cheques or  draft issued to beneficiaries without verifying the creditworthiness of loanees; and lastly the loss of crores of rupees to the Banks remained as bad loans due to political interference by then Congress government led to the downfall of banks from 1980 itself.In general, political interference in sanctioning of loans to the business people without checking the company’s financial dealings, business prospects, yearly turn over and also books of accounts of the company are very bad management from the point view of financial transactions from the Banks. Everyone knew that sanctioning of advance or loans are not so easy to get without following some procedures of the banks for common man but at the same way getting loan for big and influential business people are easy because of recommendations from politicians. Is Reserve Bank of India not entitled to Control all PSBs,Private Sector Banks and Cooperative Banks to maintain NPAs? It is necessary that some authorities like Reserve Bank of India should be there to look after the day to day dealings/transactions of all  irrespective of Public, Private sector or co-operative Banks. The interference of any political leaders, directly by the Governments or corruption of any one will spoil the growth of banks in the course of the time. If one observes the earlier decades one can understand the performance of Banks and the same is reflected the present position of Banks. If one refers to earlier period of  the performance of Banks, every one can understand the real fact of Banks.During the period from 2004-05 till 2008-09,the GDP ( read in news papers) growth indicated approximately around percentage of 8.4% under UPA rule even though there was economic recession for the entire world, the economic position of India was seems to be good during the period 2009-10 and 2010-11. Due to good economic scene and also the  Private Corporate Investment ratio of GDP growth from 6% to 14.3% increased under UPA Prime Minister Dr.Manmohan Singh. Further the economic situation of the country prompted for the Banks to extend more advances liberally to Corporate sectors and also to the big individual business people without taking proper security for their crores of Rupees of advances. But the troubles started to Banks by Bank defaulters like  mainly Nirav Modi and Vijay Mallya. The PNB and Union Bank suffered due to these defaulters. According to ex-Reserve Bank of India Governor Raghuram Rajan stated that most of the major loans had not been recovered between the period from 2006 to 2008 due to sanctioning of loans to most of the companies without verifying the history of business people. The same problems for many banks like IOB,UCO and Syndicate banks now merged with Bank of Baroda and recent mismanagement and corruption of top Executives of PMC Banks and now the Private Sector Yes Bank faced with ₹.18,564 crores loss. Major loss occurred in the Government Controlled ( Nationalised Banks ) Banks and two Privately managed by private management. If one observes the loss of Banks mainly due to Corruption and scams by the vested interest and also lack of control by the competent authorities like Reserve Bank of India with strict vigilance from the Government of India.Everyone can understand the reasons for bad loans especially in Nationalised Banks as well as in Private Sector Banks,  Cooperative banks and all financial companies are mainly political interference by  leaders while recommending the cases while sanctioning of crores of rupees as advances to top corporate companies. Another important reason is lack of honesty nowhere will be seen in these days especially in Banks and financial institutions where some of the executives will join banks/Cooperative Banks only with the intention to make money. The banks and other cooperatives banks may not show progress and achievements as long as the above existed in our country.There is prescribed norms for Banks and other financial transactions institutions to protect the depositors and creditors in case of financial emergency.  In this connection, a prescribed norm is maintaining of Capital Adequacy Ratio in Banks. The maintaining of CAR necessary to protect depositors. Generally banks with high capital adequacy ratio will be safe and can protect the depositors from any financial obligations at any time.All most all banks will have to maintain minimum of CAR of at least 8% for safety of depositors.  Mere opening of Banks and cooperative banks doesn’t serve the purpose of people. The Government may provide some working capital to commencement of Banks. Afterwards, all most all Banks will have to get finance through public issues from public to get maximum share capitals. Further, the public depositors will play a major role since the depositors will help for growth and expansion through keeping of more deposits and also by opening of more number of accounts for overall development of the Banks. Banks are the custodian of public money and the management should see that all the depositors are protected with utmost honesty since most of the accounts opened by poor and middle-class people. This will,in turn, depends on good and honest management in Banks. This will be possible by way of – 1) maintaining the Capital Adequacy Ratio @ 10.5 % which was required as per the norms under Tier Basel III for overall safety of the Banks as well as depositors and shareholders;  2) appointing honest,efficient and corruption less Executives and staff to carryout for overall development of the Banks; 3) strict auditing the yearly accounts to see whether the Banks are following the required procedure as per the rules; 4) preventing any political interference in day-to-day administration of banks in regard to sanctioning of heavy loan to the required person; empowering more power to Reserve Bank of India to check the day to day transactions of banks from time to time to look after the safety of depositors and shareholders of Banks;last_img read more

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