Estd to 10 SEPTEMBER, For a greener planet, please don't print this unless necessary

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1 Banking News Estd to 10 SEPTEMBER, 2015 NEWS BULLETIN from ALL INDIA BANK EMPLOYEES ASSOCIATION For a greener planet, please don't print this unless necessary Fragile PSBs to merge with strong peers if worries persist: Jaitley PTI NEW DELHI, SEPT 9: BUSINESSLINE Finance Minister Arun Jaitley today said consolidation of weaker state-run banks with stronger ones will be the next step if some of the lenders continue to remain fragile despite steps to strengthen them. Speaking at an event organised by The Economist here, Jaitley also said that though non-performing assets (NPAs) in the banking sector was a cause of concern, there was no ground to panic.

2 He said the Government was taking steps to strengthen the public sector banks and highlighted the measures, like capital infusion and hiring of professionals, including from private sector. Bringing down government stakes in these banks to 52 per cent would further augment their capital. The government s first objective was to strengthen fragile public sector banks (PSBs), he said. After this (measures) if there is a fragile bank we are looking at consolidation with stronger banks. So it s not that banks don t get a priority. In fact, after inheriting the banks in a fragile situation, we are systematically trying to address each of these problems, Jaitley said. On NPAs, he said: It is (banking system) a matter of concern. It s not the main worry. There is no ground to panic. The banking system that we inherited primarily, the public sector banks, was actually very challenging. When the economy slowed down, and when you inherit the economy at sub 5 per cent level, it has an impact on the banking system as well... primarily three or four sectors...(have) added to the NPAs of the public sector banks, he said. He said the NPA was mainly in sectors like highways, steel, state discoms and textiles. Jaitley further said the government has addressed the highway issue in a big manner, large investment is going in highways and it has started moving. As far as the discoms are concerned, I am in touch with each of the states where the discoms need to be reformed, he said, adding government was looking at more steps to check dumping of steel in the country. Gross NPAs of the state run banks at the end of March quarter stood at 5.2 per cent compared with 5.63 per cent in December. Out of Rs 1.80 lakh crore capital requirement estimated by the Finance Ministry for state run banks, the government would be providing Rs 70,000 crore Rs 25,000 crore each in the current and the next fiscal, and Rs 10,000 crore each in and fiscal.

3 RBI to announce winners of small finance bank licence in the next few days: Mundra KR SRIVATS BUSINESSLINE NEW DELHI, SEPTEMBER 9: SS Mundra, RBI Deputy Governor Also, banks to be allowed to undertake credit enhancement of corporate debt The Reserve Bank of India will, in the next few days, announce the names of successful applicants who are to be granted small finance bank licences, SS Mundra, RBI Deputy Governor, said. The central bank has received as many as 72 applications for starting small finance banks, which will function on the lines of commercial banks, but would cater mainly to the unserved and underserved sections of society. There will also be limits on the loan size and the quantum of deposits that such banks can accept. We are going to announce the names (successful applicants) in the next few days, Mundra toldbusinessline on the sidelines of a summit on Financing India s Growth: Way Forward, organised by the PHD Chamber of Commerce and Industry (PHDCCI) here on Wednesday. The RBI s regulations stipulate that at least 50 per cent of the loan portfolio of small finance banks has to include loans and advances of up to 25 lakh. Credit enhancement Earlier, Mundra said in his address that the RBI would soon allow banks to undertake credit enhancement of the debt issued by corporates. This would raise the credit quality of debt issued by Indian companies and provide more comfort to bond market investors. In India, a credit enhancement scheme has already been introduced by India Infrastructure Finance Company (IIFCL), a 100 per cent government-owned company.

4 Credit enhancement is in the form of first-loss partial guarantee from IIFCL. This provides investors with recourse to the guarantor for a certain predefined percentage of debt service obligations on the instrument. It may be recalled that the RBI has allowed the setting up of payments banks and small finance banks to deepen financial inclusion. Last month, it granted in-principle approval to 11 entities to set up payments banks, which will complement, not compete with, universal banks. Universal banks have an edge over payments banks as they provide a wider range of products and services. A payments bank can accept deposits of up to 1 lakh through current and savings accounts. These banks can also issue debit cards and offer internet banking. However, they are not allowed to lend or issue credit cards. The curious case of the Nabard boss who ignored clear conflicts of interest by shalini singh Sep 4, 2015 F. Business Dr Prakash Bakshi, a former chairman of the National Bank for Agriculture and Rural Development (Nabard), who faces charges of financial impropriety and giving unusual preference for financing rich corporates over poor farmers, has curiously gone an extra mile to establish his guilt. Dr Bakshi has joined Shree Shubham Logistics Ltd (SSLL) as its managing director. SSLL, which is a subsidiary of the over Rs 6,000 crore Kalpataru Group (including Kalpataru Power Transmission), was one of the biggest beneficiaries of irregular soft loans and interest subsidies during his tenure as the Nabard Chairman from June 2011 to September Dr Bakshi was served a charge-sheet by the government on 30 September his last day of service - for misappropriation and misuse of his official position. Though sources confirm that Dr Bakshi had attended a meeting in Nabard as SSLL s representative soon after his retirement in 2014 itself, there has been no official disclosure of his employment until recently on the SSLL website.

5 However, an article of 14 March 2014 said Dr Bakshi had already been appointed MD of SSLL, quoting sources privy to the development. This undeclared association could also be because a retired Central Service Group A official is not allowed to accept private, commercial employment before the expiry of two years from the date of his retirement without a sanction from the President. The Department of Financial Services (DFS), in response to information sought under the RTI Act, confirmed on 22 September 2014, that Dr Bakshi had sought, but was denied permission, to take up short-term consulting assignments with multilateral and bilateral agencies, Zydx Industries and Kalpataru Power Transmission Ltd. Government service rules are clear that any approvals for commercial employment are conditional upon the official not having any official dealings with the prospective employers in the preceding five years; there should be no conflict of interest between the policies of the office(s) he had held in the last five years and the interest represented or work undertaken by the organisation he proposes to join; he should have had a clean service record, particularly with respect to integrity and dealings with government as well as with central public sector enterprises (CPSEs)/non-government organisations; the applicant s commercial duties should not involve liaison or contact with government departments/pses; and the employer of the applicant should not get an unfair advantage due to previous official positions/experience/knowledge of the incumbent and, lastly, the present emoluments and pecuniary benefits should not be far in excess of those currently prevalent in the industry. Many of these conditions appear to stand violated in Dr Bakshi s case. His role in making corporates beneficiaries of soft loans and subsidies has been at odds with Nabard's special mandate to promote rural development by providing soft loans to state governments for social sector projects. However, despite a letter dated 1 February 2013 by Gurudas Dasgupta, Member of Parliament and General Secretary, Aituc, urging the then Prime Minister, Manmohan Singh to initiate a thorough probe into the functioning of Nabard in order to bring much needed relief to the rural poor, no action was taken. Dasgupta had further said that "evidence shows that Nabard's shift in priorities is directly linked to the leadership of its chairman, Mr Prakash Bakshi, who, in a significant deviation of policy, included private entities as eligible institutions without consulting the RBI.

6 A detailed questionnaire mailed to the department of financial services secretary, Anjuly Chibb Duggal, seeking clarity on the status of the pending charge-sheet against Dr Bakshi and his decision to seek permission to work with SSLL, went unanswered. Another reason for the sudden disclosure of Dr Bakshi s employment status with SSLL could be that the company is learnt to have applied for listing on the Bombay Stock Exchange, for which disclosure of its top management team was mandatory. Curiously, Dr Bakshi s tainted background has not been a deterrent for SSLL, despite evidence that corporate governance, led by an able, professional and transparent board is the way both to better market valuations as well as to securing the long-term financial health of a firm. Questions mailed to SSLL s Chief Financial Officer, Vishesh Singhvi, and to Dr Bakshi himself, seeking the date of his joining the company, his compensation details and reasons for possible concealment of the employment history until recently also went unanswered. Apart from wilful, established conflict of interest during his tenure in Nabard, Dr Bakshi has been occupying an SSLL company flat in Goregaon post his retirement from Nabard, without obtaining government clearance to work for them. Wrongdoers who abuse their positions are mostly responsible for the NPA (bad loan) pileups in the banking sector, which is affecting the entire economy. Rather than punish them, the system rewards such people, said a top official in Nabard on condition of anonymity. Policies customised for SSLL? After becoming Nabard's chairman in June 2011, Dr Bakshi developed close ties with Aditya Bafna, Executive Director of SSLL, who was appointed Director on the board of Nabard Consultancy Services Pvt Ltd (Nabcons), a wholly-owned subsidiary, on 15 January Within a few months, in a significant deviation from Nabard's mandate and earlier policies, Dr Bakshi made private entities eligible for soft loans for warehousing projects for the first time through a circular dated 27 September This was done without consulting the Reserve Bank of India. Through another circular dated 23 December 2011, the scheme was revised to allow private firms an interest rebate of 1.5 percent, again without consulting the RBI. Between March 2012, Nabard disbursed Rs 759 crore, including refinance at 8 percent, to banks to fund 516 warehouse and cold storage projects. SSLL, the biggest beneficiary, accessed Rs crore, purportedly to set up 18 warehouses, with an additional refund of Rs 20

7 crore through a 15 percent subsidy benefit given to it under another scheme. Funds were disbursed even when SSLL s projects were found to be ineligible for the subsidy by the Ministry of Agriculture. Sources in Nabard allege that even when SSLL s projects failed to meet eligibility criteria, officials would be harassed, served charge-sheets and retirement benefits withheld for legitimately rejecting its applications. They say Dr Bakshi punished and disbanded the original team which rejected the proposal for the release of subsidy, based on the Ministry of Agriculture s guidelines and a special team was put in place to fast-track the clearance. Poor governance: The nature of the violations, made often by ignoring the directions given by the RBI and the Ministry of Agriculture, and the clear conflict of interest were first detailed in this article. A week later, Nabard, under fire from the RBI, was forced to withdraw its controversial schemes and seek a refund from those to whom it was disbursed, which was highlighted in this article. However, instead of accepting blame, Nabard tried to shift blame for the financial transgressions and conflicts of interest highlighted in the media to the RBI and the Finance Ministry. Nabard's story kept growing progressively worse, with evidence of selective allocation of grants to an NGO called Janhit Foundation, Lucknow, that is linked to former DFS Secretary, DK Mittal. The DFS secretary, in his/her official capacity has a strong hand in Nabard's decisions. Mittal s influence can be adequately gauged from the fact that total grants of Rs 7.88 crore were disbursed to 303 NGOs in Uttar Pradesh in , Janhit Foundation alone secured Rs 6.01 crore. A meagre Rs 1.87 crore accounting for an average grant size of between Rs. 8,000 to Rs. 80,000 wasdisbursed to the remaining 302 NGOs. Interestingly, Mittal was unsinged by the media fire. He serves as an independent, non-executive director at Max Life Insurance Company Ltd. He was also handpicked by Railway Minister Suresh Prabhu to head a high-level panel to recommend ways to resuscitate the Railways' financial health in December Banks indulging in cartelisation of savings rate Has cost of deposit mobilisation been static for all banks, asks Kishori Udeshi

8 MUMBAI, SEPTEMBER 9: Kishori Udeshi, a former Deputy Governor of the RBI and ex-chief of the Banking Codes and Standards Board of India, came down heavily on banks in the country for what she called cartelisation of savings rate. In a hard-hitting speech, after receiving the 11th MR Pai memorial award here on Tuesday, she pointed out that when the RBI deregulated the savings bank (SB) rate in October 2011, most banks fixed their SB rate at 4 per cent and it has remained there since then. Are we to believe that the cost of deposit mobilisation is the same for all banks big, small, public, private, foreign and that it has remained static since 2011? she asked. In a radical proposal, Udeshi suggested the complete divestment by the government of its holdings in public sector banks, so that the pressure on the fisc by way of contributing to the recapitalising of such banks will be lifted. Or, the government, she said, could reduce the pressure by divesting up to 33 per cent of its holdings in public sector banks as once proposed by former finance minister Yashwant Sinha. The second solution, though Parliament friendly, will not be able to cure the malaise that prevails in public sector banks and will only be a half measure, she added. Jan Dhan scheme lauded Praising the Prime Minister s Jan Dhan Yojana for accomplishing in one stroke what had not been achieved in 46 years of bank nationalisation, Udeshi said that the cynics have been silenced. There were still murmurs about the cost of starting those accounts and a demand from some banks that they should be reimbursed. She said this should not come in the way of the right of the poor to be a bank customer and cited a recent statement by SBI Chairperson Arundhati Bhattacharya that the Jan Dhan accounts would become viable shortly. Udeshi donated the award money of Rs 1 lakh instituted by the Punjab and Maharashtra Cooperative Bank to the All-India Bank Depositors Association. ALL INDIA BANK EMPLOYEES' ASSOCIATION Central Office: PRABHAT NIVAS Singapore Plaza, 164, Linghi Chetty Street, Chennai Phone: , & Fax: , e mail ~ chv.aibea@gmail.com