Effect of Social Banking on PSU Banks Profitability – On DRI alone we are losing 3,833 crores
When we analyze the 7th CPC recommendations and also compare the Insurance employees’ wage revision with our Bipartite Settlement, it can be clearly observed that the government is ready to give decent wage hikes to various Public Sector and Government employees. The question that naturally arises is why is it that only bank employees do not get on par with them and the probable reasons for the same are as under:
- Do our banks have enough paying capacity to pay the salaries and remain profitable?
- Whether the government is trying to push hard the banking sector reforms (including mergers) and is trying to arm twist bank employees?
While analysing the disparities and also the probable reasons behind that, we felt that a concrete action by all the below-mentioned stakeholders will have a substantial impact on correction of the disparity of wages ( Eleventh Bipartite ) besides improving efficiency and profitability of PSU Banks.
1.The Government of India.
2.Management of individual banks.
3.Employees ( Represented by respective unions)
Government of India:
To everybody’s surprise, RBI governor has made a statement that social banking should be separated from traditional banking. We suggest the following steps, so as to enable co-existence of both social banking and traditional banking.
We as bankers are lending to different weaker sections of society to uplift them and to mitigate/reduce their financial burdens by offering loans at cheaper rates. In the process, we are taking a hit on our profitability. The Government should compensate the differential amount through budgetary provisions.
The following are some of them
- As per present guidelines, net outstanding of DRI loans should not be less than 1% of previous year’s Total Bank Credit. We are charging 4% simple interest for all DRI customers Straight away we are losing out 7% of interest on DRI loans alone. Total advances of nationalized banks as at Mar 2015 is Rs. 54,76,251 crores. Out of this, mandatory DRI advance should be Rs.54,762 crores and the notional loss of 7% on this amount comes to Rs. 3,833 crores. Central Government should provide for the above loss in the budget and should be distributed to all Banks according to their share, which will be credited to their P&L Directly.
2.The classic example for provisioning for the interest subsidy through budgetary allocation is, interest subvention for Crop Loans and export finance, where in government is absorbing 2% to 5% according to the schemes. But here also, the government is forcing all the PSU banks to lend at a maximum rate of 9%.(for all crop loans). Why this 9% ceiling? We should charge at the commercial rate taking into account the cost involved in processing the huge number of loan proposals, default risk etc., Taking into the present market condition, interest on these loans should be a minimum of Base Rate + 1%. A majority of banks are losing around 1.5% to 2% on these loans. At present we don’t have exact data on outstanding crop loans, we assume that crop loans outstanding would be around 5% of total gross advances i.e 2,73,812 crores and a moderate 1.5% loss will be Rs. 4,107 crores.
Apart from the above two, we are sanctioning many government sponsored schemes, Mudra Loans, numerous state government sponsored schemes, year after year without bothering for recovery or cost-benefit analysis.
The total cost of social banking on profits of PSUs will thus be anywhere between Rs. 20,000 Crores to Rs.25,000.00 Crores.
For their political benefits, our beloved governments have been squeezing the profits out of PSU banks and have been blaming our inefficiency for the losses, and, in turn, making bank managements stating the reason of insufficient paying capacity to increase the salaries (Eleventh Bipartite) of the PSU bank employees.
Effects of Political Banking:
Apart from social banking, a new trend has emerged wherein industrialists and businessmen are actively participating in politics. We may term it as political banking. Industrialist turned politicians are causing the worst situation for all the PSU banks. As of now we don’t have any data in this regard. Our leftist unions should use RTI, instead of staging protests (for publishing the names of defaulters) to collect the data with regard to overdue bank loans of business houses owned by all MPs and MLAs. On Kingfisher alone we have lost more than Rs.7000 crores (Amount lost in these accounts alone is enough to triple our salaries in the ensuing Eleventh Bipartite).
The immediate step to be taken in this regard is that promoters/owners of all defaulting companies (NPA / Overdue / Restructured) along with their family members should be barred from contesting any type of elections.
It’s time for “thinking out of the box”. We at Banknews-views have started the same, we invite further suggestions and contributions to improving our profitability and to demand a better Eleventh Bipartite.
We should make one thing clear to Managements and Government of India that we are toiling hard and working with utmost integrity to serve the public and our organisations. Primarily we are responsible for making many government schemes successful. We deserve a fair increase in salaries and we are ready to face the turmoil through which present banking industry is going through. The government can’t sit silently issuing statements that infusion of capital is directly related to the performance etc., and it is high time that we all should fight united against the government policies.
Along with rights come responsibilities, hence in the coming days, we will be discussing the steps to be taken by the individual bank managements and also by employees for improving the profitability and a better eleventh bipartite.