 Hello and welcome to NewsClick. Today, we have with us Mr. Thomas Franco, the former General Secretary of All India Bank Offices Confederation. We'll discuss with him today about the recent crisis in the Indian banking sector and the reasons for the mounting NPS. Welcome, sir. Sir, of late we are hearing a lot of news about the crisis in the Indian banks. From your perspective, what are the basic reasons behind these issues? It is not true that banking sector is in any crisis. This is a man-made crisis. The Reserve Bank of India had been changing the norms for non-performing assertions because of which the like, they had a 360 days norms, then it became 180, then it became 90, suddenly they said it will be one day now because of which the number of NPS and outstanding NPA has increased. A detail analysis of this has been done by the Parliamentary Standing Committee on Finance and submitted to the government on 16th February 2016 itself where they have analysed the root cause for the NPA and they have also suggested what are the alternatives, what is to be done. Unfortunately three years have gone the government has not taken any action on that. For example, they have clearly analysed that one major reason for the non-performing assertions is the position of the economy. The economy is not growing. So when it is not growing naturally it will affect on the banking sector. Similarly they have said there has been inordinate delay in completion of projects. Another reason is the global breakdown. These are some of the reasons they have analysed and they have suggested as remedies, few things. There are 16 recommendations but some of the major ones I would like to touch upon. One is that they have said the developmental financial institutions, DFIs. We had ICICI we had HDFC we had IDBA. These were all converted into universal bonds. They were created for long-term finance. So now the long-term finance was forced on the public sector. So they have suggested that you should revived development financial institutions. That has not been done. Second, they had given a very easy and good solution. The outstanding NPA is large in the infrastructures and infrastructure finance is supposed to be a long-term finance. Whereas banks collect deposits for 5 years, so they are not supposed to give long-term loans. Instead of that, they have been forced to. So what Ramadi they have suggested is that let the development financial institutions like one of the which is still existing the industrial finance corporation let it take over these loans. The banks books become clean. That loan let them convert it into a long-term finance. So the infrastructure which is being created, which is getting into a crisis also can stand on its own. When the finance is converted into a long-term finance 15 years, 20 years, they have a breathing time and it takes time also for them to earn profit. So with the lengthening of the repayment period lengthening the period, they will start repaying and those loans ultimately become the performing assets and infrastructure will be helped, economy will be helped. These banks once their books are clean, now they will start lending more and that way it will give a boost to the economy. That has not been done. They have also said that you should take action on the managing directors and the board of directors who are responsible for the large corporate NPS especially in the case of defaults which have taken, which is called the quick mortality and no action has been taken. They have suggested that Reserve Bank which is having a controlling responsibility should not ask their people to sit in the boards of the banks to take credit decisions. That has not been implemented. Reserve Department of Financial Services they have their representatives in the boards of the bank they were party to the decision so they should also be held accountable. None of this has been done. So because of that the NPA is mounting and they brought in these schemes called the insolvency and bankruptcy code and national company law tribunal where more of write-offs are taking place in the name of higher cuts rather than recovery. So it is a crisis created by the policies of the government. So the government has to take responsibility and alter the policies that has not been done. Speaking about NPAs, the mounting NPAs has always been a problem. The larger loans are very high whereas the loans given to the farmers small scale enterprises are very small. So what policy need a policy change is needed to balance this particular issue? From the day of starting up banks there has been NPA. Bank knows any lender will know that the entire loan will not come back. There can be many reasons for which somebody may die, somebody's business may collapse, there may be a calamity so you will not be able to replace. So you always keep a provision of that. And we have been writing off loans which was not creating a crisis to the banks balance it because earlier our loans were small loans. If you look at the data of Reserve Bank of India 1990 most of the loans were small loans. 99% of the total number of loans were less than 2 lakh loans. So if 100 loan goes back bad also that right-off is not going to affect your large balance sheet. But after 90 the Government of India changed its focus. They changed the lending policy. They removed the MRTP act monopoly and restrictive trade practices act. They removed the credit authorization scheme which we had to take permission for giving any loan more than 1 crore. Many policy decisions were taken because of which banks started lending more to the larger borrowers. Again there was reduction in the bank staff. 10 years there was no recruitment. There was a VRS given called Golden Bank and Shake where in one year 134,000 people left the banks. So banks also found it difficult to cater to smaller borrowers. So the concentration of credit went to the corporate's large borrowers. You see the last year's data which is available in Reserve Bank. The number of loans as well as outstanding is much more with larger borrowers. There are around 14,000 borrowers who have taken loans more than 100 crores. Who constitute total 38% of the total loans given. Just 14,000 people have cornered 38% of the total loans given in the entire banking sector. And RVA itself has given figures that the larger NPA is in the corporate sector. 86% of the total NPA belongs to the corporates. So unless you solve that problem how can you solve the banking crisis of NPA? That effort is not being taken. So what I would suggest is that now they should change the policies provide more staff have more branches and encourage small loans. It is this farmers it is this allied agriculture agriculture small industries cottage industries artisan who create local employment and that employment is a major problem in the country. This can happen by redirecting the credit to the smaller borrowers. So what the government speaks volumes about making the day better for the common people but whereas their policies continue to favor the corporates. See now they are doing a large exercise in the banking sector. Bank, MDs and chairmen who are called for a meeting for two days at Delhi which was addressed by the finance minister as well as officials of the finance ministry and the eight so called experts who are called to speak to them. Already the former finance minister who was just passed away had been doing a review almost every two months he used to review the progress of banks directly with the MDs and chairmen of the bank which was very rare earlier. So if something has gone wrong it is he and his ministry who are responsible for what has gone wrong. Now this exercise what they are doing they called eight so called experts they call Uday Kotak who is the managing director of Kotak Mahendra Bank which is a small bank in existence only for few years to tell the public sector bank MDs and chairmen of public sector banks what is to be done for the public sector banks governance. So they are indirectly saying that the public sector banks are so weak to get advice from a private banker and the funniest advice given by him is that he talks such nonsensical language and he says now that 370 has been removed in Kashmir now time has come for the government to act on the public sector banks you have to privatize them and he is giving an easy option first of all you do one thing at least give 26% of the public sector banks share to a private bank so we become partner with this bank and then we will improve the banks governance how many of the private sector banks are doing so robust you have seen what is happening in ICIC we have seen what has happened in access so many other banks and it is because of failures of many private sector banks that nationalization have to take place so this is one example secondly they call Nandan Nilkeni who had been heading Infosys who had been heading UIDI that the solution here is digital so you digitize everything all problems will be solved without having a basic understanding that 26% of the population cannot read and write and they also require banking and you have opened Nandan accounts for them almost 90% of the people are not fluent with English so what is your technology of digital banking going to help them number 3 there are so many frauds taking place in the digital media after the universal payment system which UPI they started there are so many frauds taking place when you link your Aadhar card and the UPI calls up and asks for your password saying that we are calling from the bank you share it within seconds everything is gone and you don't know where it has gone there is no way of tracing the money where it has gone with this very bad security process they are asking us to go digital and with that he is saying that go digital go digital and you start charging for the services earlier ATM anytime you can any number of time you could withdraw everything there is a charge you go to a post machine there is a charge detected so unless the people are comfortable for using technology by forcing it you cannot succeed even in developed countries like US still now 50% of the people are using cash they find it convenient so this focus again is a wrong prescription then Aditya Puri which is the chairman of the HDFC bank he comes and talks about retail lending you increase your retail advance every bank knows that they would be comfortable by giving more loans to housing more personal loans to salary people more loans to the farmers because where the recovery is also sure and it does not require a private bank someone tell the public sector bank what is retail lending what is lagging there is that retail lending requires larger number of workforce larger number of branches rural branches, semi-urban branches have to increase you are having business correspondence 360,000 of them who cannot take ready decisions so what you require is a larger workforce that you are not addressing salary and allowance is an issue for the bankers tell like employees are struggling for the last 2 years for a bank wage which has not happened so they are not happy you are not addressing that but you just force people if everybody is going to give only retail lending what do you do with your huge quantity of deposit you are keeping larger borrowers that kind of a solution as if the bankers who have worked for 30 years, 35 years in the banks does not know anything you bring in the so called experts who do not really know what is a public sector bank and you are giving solution that is not going to work now a large exercise only like 50,000 bank branches the branch managers who are called their own respective regions and review meetings to play series of questions if you look at the focus of the question itself you know what is their intention why corporate loans have gone down so that means you want the banks to once again lend more to the corporates without addressing the problem of the corporate NPA number 2 why mudra loans are not mudra loans are being given large number of loans have been given by the banking sector where as for an award report already 60% of the mudra loans have gone bad they have become NPA but the government claims that mudra loans has been a great success as a policy decision they are claiming it as a success only looking at the numbers you should see whether it is really used for doing a business or running a factory whether repayment is coming without looking at that just by number saying that it is a huge success is not correct and mudra loans are now getting totally politicized the ruling party representatives though they go with the loan application and they brought in some funny scheme called 59 minutes loan where you are parting money with some unknown fellow who is going to give you only a provisional sanction that that does not make any sense at all and in few days one unknown company made crores of money by just making them download the application and after that you go to the bank bank has to follow all the norms and that scheme and whereas government claims that it is a great success you should look at the figures and mudra loan yes the businessmen small industries they require loan but you have to create a conducive atmosphere for them you brought in demonetization you brought in GST where still people have not understood for which what percentage government and every month you are supposed to file a return which they are not capable small people how they will be able to afford to do all that has affected that sector now just by asking to give some more loan the solution is not going to come similarly they are asking questions on NPA why NPA has increased as if they don't know as I told you there are enough studies reports available including parliament report analyzing the root cause of the problem but now again you are asking the employees to tell them and now they are ranking the employees based on that performance there is a huge fear that they are likely to send out some people saying that you are not performing up to the mark performance depends on many factors somebody in an interior area in a rural area his opportunity for performance might be much much lesser so performance cannot be just based on how many loans we have given so that is again actually creating a fear psychosis among the employees then you have not created a correct mechanism for recovering the loans they are asking questions about start of India scheme Swach Bharat scheme very you create an atmosphere for that start-ups can succeed only if government provides adequate support to them now they have said that they are removing deffering the angel tax that is a small portion how much of the money for a new start-up entrepreneur how much comes from an angel investor it is a very small amount and for that waving tax ok fine for few years you don't collect tax is fine but that is not the solution you look at the countries like China or Israel where start-ups are being given lot of support like Israel start-up you have an idea the government gives the sheet capital in China the banks are asked to support this start-up knowing fully well that at least 80% is likely to fail but that failure the blame will not be put on the bank instead the government gives financial support to augment that shortage for the banks because of which without hesitation banks especially the development financial institution they are giving loans here you see at that atmosphere but just force banks to lend more loan more to the start-ups that's not going to happen because finally as a banker when I decide on a credit I have to look at whether the business vendor is going to succeed whether the money is going to come back once that guarantee is not there I will not attempt to give that loan or just to satisfy the number give a small loan and show that I have given so many loans which will not really help the economy or 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