If I become Minister, What will be my strategy to stop price rise?
I will Increase production at farm level, enforce efficient distribution system, ensure safe keeping of buffer stock, tightening of measures against hoarders, blackmarketeers and profiteers, put restriction on traders who create artificial crisis monitoring market trend of prices every day through public relation officers posted in each district, and if possible fix prices where prices are going up and up without any reasoning, stop future trading in commodities and completely ban all speculative activities. I cannot allow exploitation of poor in the name of reformation and privatization or liberalization. I believe excess of freedom is also harmful for any nation and necessary regulation of activities is in the health of the economy and social peace. I will ensure that all officers from top to bottom are vigilant on price movement because it is prices of essential commodities which can make or mar the career of any person.
Last but not the least I will try to stop all unwarranted talks and promises on prices control without making it practically possible. I believe in doing first and informing later and I hate politicians who talk much but do nothing. I hate media who make so much hue and cries, fire Ministers, show useless fierce interviews with politicians but do nothing to expose the real culprits behind unabated and sky rocketing price ruse. Individual shout in street corner meetings or on road and media cries on TV channels but government keeps eyes and ears closed and enjoy to the maximum possible extent.
Is it true that for every selfish leader there is a dedicated leader?
Yes in India it is an open secret and common in all offices and in all departments. All bosses and all top leaders at all levels have a dedicated leader called as Chamcha in common language. Similarly all political heavy weights have dedicated team of political workers behind him and it is only such yes-men who can move ahead in their career .One who is actual worker, performer, real patriot, devotee of God and lover of the country cannot survive and cannot imagine prospering. This is the main reason behind all corrupt activities and all crimes taking place in the country. This is the reason that criminals are moving free without fear of punishment and innocent person are made victim, facing frustration and depression in their life.
Should anyone demand resignation from Mr. Sharad Pawar for current price rise?
I cannot ask for resignation and neither can I suggest this. If the minister is ineffective he should be sacked and his position as MP should also be dismissed. Fresh election should be there. It will be ridiculous if Sharad Pawar resigns as Agriculture Minister and UPA makes him defense minister. Undoubtedly he will spoil Defense ministry.
When Lalu was charge sheeted by CBI, he resigned from CM post of Bihar. But later he became Railway Minister at Center. This is not the solution.
Shiv Raj Patil was inefficient and if he is made governor of a state what will be the fate of that state. Similarly it is possible that Mr. Pawar is offered the post of President by UPA. Question is therefore how to punish an erring Minister in such a way that none of the minister dare to be lazy and ineffective. A simple officer cannot survive in any office if he is not performing well, how a minister in our country is allowed to move up and up even if he does not perform. But it is unfortunate that the post of Minister as also all top posts in government departments have become a tradable commodity in Indian politics.
Danendra Jain,
Agartala
13th January 2010
Wednesday, January 13, 2010
Friday, January 8, 2010
Price rise is due to neta-traders nexus
Prices of all edible food grains are continuously rising. In past three four decades I think price never shoot up so much high and so much quickly and speedily in the past, even during Indira’s rule. Prices are increasing brakeless and unabated. It seems more ridiculous when government claims that it is watchful and monitoring properly the trend of price. It gives the message that political leaders do not mean what they say.
Reason behind current price in my opinion is undoubtedly o Neta –Traders and Neta-share broker nexus and it is be beyond the control of the government or the administration. Mr. Sharad Pawar openly says prices will go up. When Ministers issues such irresponsible statement, market overreacts and it is natural. Even opposition parties are silent, almost silent. It shows there are also black sheep in opposition camp. In parliamentary system it is only opposition which can save people of India from misrule of ruling government. If opposition parties also become silent spectator of rising prices, people are helpless.
Media makes so much hue and cries through TV and print media every now and then. But there is none in the camp of ruling or opposition camp to bother. Ruling government has got a lame excuse and they always talk of global warming or global economic slowdown or bad climate and easily they hide the mistakes of Indian system and also underlying corruption, unethical profit making through hoarding and arbitrary fixing of rates on all commodities . Opposing parties due to their internal problems have also turned deaf ear to painful price rise.
Business house are however very much clever and they keep good relation with all political parties. Obviously leaders of all parties enjoy and it is only common men who suffer the most. Leaders of UPA government blame state governments for current price rise and accuse them for spurt in prices. But they forget that prices are rising even in those states where UPA is in power. When government is not bothered, let the public suffer and revolt against price rise.
Minister of external affairs advised students not to prefer education in Australia because it is not in their control to stop violence going on in Australia against Indians unabated. Now it is also possible that Manmohan Singh, Prime Minister of India will advise the common men to avoid buying commodities which are not in their reach and remain content with grass and tea leaves.
Danendra Jain
Agartala
9th January 2010
Reason behind current price in my opinion is undoubtedly o Neta –Traders and Neta-share broker nexus and it is be beyond the control of the government or the administration. Mr. Sharad Pawar openly says prices will go up. When Ministers issues such irresponsible statement, market overreacts and it is natural. Even opposition parties are silent, almost silent. It shows there are also black sheep in opposition camp. In parliamentary system it is only opposition which can save people of India from misrule of ruling government. If opposition parties also become silent spectator of rising prices, people are helpless.
Media makes so much hue and cries through TV and print media every now and then. But there is none in the camp of ruling or opposition camp to bother. Ruling government has got a lame excuse and they always talk of global warming or global economic slowdown or bad climate and easily they hide the mistakes of Indian system and also underlying corruption, unethical profit making through hoarding and arbitrary fixing of rates on all commodities . Opposing parties due to their internal problems have also turned deaf ear to painful price rise.
Business house are however very much clever and they keep good relation with all political parties. Obviously leaders of all parties enjoy and it is only common men who suffer the most. Leaders of UPA government blame state governments for current price rise and accuse them for spurt in prices. But they forget that prices are rising even in those states where UPA is in power. When government is not bothered, let the public suffer and revolt against price rise.
Minister of external affairs advised students not to prefer education in Australia because it is not in their control to stop violence going on in Australia against Indians unabated. Now it is also possible that Manmohan Singh, Prime Minister of India will advise the common men to avoid buying commodities which are not in their reach and remain content with grass and tea leaves.
Danendra Jain
Agartala
9th January 2010
Thursday, January 7, 2010
Is selling of PSU only remedy
It is always advisable that office bearers of an organization are changed periodically in a democratic system. At least there should be change of person every two or three years for the post of Secretary and the President in the same way as Branch head or Regional head or Zonal head or CEO of a bank is changed every two – three years.
In a democratic country like India every political parties have been changing their Presidents periodically. Prominent Communist parties change their party president every two years. Banking Industry has inherited communist culture, but it is disheartening to mention here that staff unions and associations in these banks are dependent on a few leaders who have been occupying top posts for decades. Political parties, trust or an organization or Bank union or association of officers who consider any person indispensable on top posts are really too weak to survive for long and undoubtedly prone to corrupt practices. These organizations in fact have not developed second line of management.
Even a financial Institute cannot prosper with quality and remain in good health if the persons posted at responsible and sensitive posts are not altered periodically. Whereever the same person hold sensitive posts in a bank for a longer period it is found that the bank's intrinsic value and overall quality of its assets suffers continuous erosion and the disease of corruption spread like cancer in the system. It is such organization where whimsical promotions and whimsical posting takes place.
It is these organizations where good persons are shunted away and bad persons are promoted and placed at cream posts so that the corrupt lobby is not questioned by anyone. It is under such bad administration that person like Rathore goes on getting promotion and respectable posting whereas on the other persons like Ruchika are forced to bear with injustice meted out to them. By the time realities of corrupt person get exposed by grace of God, it is too late. Justice delayed is justice denied. There are many Rathore like executives in banking Industry too who have been getting uninterrupted promotions and getting one after other elevation in their career (at the cost of good performers) despite the fact that there were indulged in corrupt practices and they caused huge loss to banks.
Keeping in view above-mentioned bitter truth of the organization I demand those office bearers of officers association as also employees unions in all banks must be changed every two - three years. If Bank employees fail to ensure this healthy culture, perpetuation of injustice cannot be stopped and frustration among good workers will continue to rise ultimately jeopardizing the health of the bank.
I hope sensible, experienced, educated and prudent class of officers will apply their wisdom and take all possible steps to stop monopoly and dictatorial attitude of certain office bearers who have in course of time become indispensable and who are eating away fruits of hard labour done by real workers. Second line of leadership must be developed in all organization for achieving sustainable quality growth of not only assets but also that of human capital.
Danendra Jain
Ganaraj Choumuhani
Agartala
7th January 2009
In a democratic country like India every political parties have been changing their Presidents periodically. Prominent Communist parties change their party president every two years. Banking Industry has inherited communist culture, but it is disheartening to mention here that staff unions and associations in these banks are dependent on a few leaders who have been occupying top posts for decades. Political parties, trust or an organization or Bank union or association of officers who consider any person indispensable on top posts are really too weak to survive for long and undoubtedly prone to corrupt practices. These organizations in fact have not developed second line of management.
Even a financial Institute cannot prosper with quality and remain in good health if the persons posted at responsible and sensitive posts are not altered periodically. Whereever the same person hold sensitive posts in a bank for a longer period it is found that the bank's intrinsic value and overall quality of its assets suffers continuous erosion and the disease of corruption spread like cancer in the system. It is such organization where whimsical promotions and whimsical posting takes place.
It is these organizations where good persons are shunted away and bad persons are promoted and placed at cream posts so that the corrupt lobby is not questioned by anyone. It is under such bad administration that person like Rathore goes on getting promotion and respectable posting whereas on the other persons like Ruchika are forced to bear with injustice meted out to them. By the time realities of corrupt person get exposed by grace of God, it is too late. Justice delayed is justice denied. There are many Rathore like executives in banking Industry too who have been getting uninterrupted promotions and getting one after other elevation in their career (at the cost of good performers) despite the fact that there were indulged in corrupt practices and they caused huge loss to banks.
Keeping in view above-mentioned bitter truth of the organization I demand those office bearers of officers association as also employees unions in all banks must be changed every two - three years. If Bank employees fail to ensure this healthy culture, perpetuation of injustice cannot be stopped and frustration among good workers will continue to rise ultimately jeopardizing the health of the bank.
I hope sensible, experienced, educated and prudent class of officers will apply their wisdom and take all possible steps to stop monopoly and dictatorial attitude of certain office bearers who have in course of time become indispensable and who are eating away fruits of hard labour done by real workers. Second line of leadership must be developed in all organization for achieving sustainable quality growth of not only assets but also that of human capital.
Danendra Jain
Ganaraj Choumuhani
Agartala
7th January 2009
Friday, September 25, 2009
Bank's Festival Offer on Home loans
Before 1991 banks used to charge higher rate of interest for higher amount of loans. The logic behind such approach was that rich businessmen could afford higher rate of interest. Small businessmen can compete in the market with wholesale dealers and bulk manufacturers only when they are given certain discounts on interest rates. This philosophy worked upto 1991 when social objective was real and truly followed by bankers and this was the sole target of the government too. Banks were nationalized in the year 1969 so that poorest among the poor can also approach banks for keeping their surplus fund and also to seek loan for their business and personal requirements. Banks were opened in villages so that it is made available in even remotest villages and its reach become wider and wider up to even downtrodden villagers and even scavengers in the towns. All types of facilities and rebates were meant for poor and middle class.
In the modern days i.e. after 1991or you can says in the age of economic reformation, liberalization and globalization, the approach of the government and also the bankers have completely changed. After 1991 social objective has in fact become a mask to conceal their hidden agenda of earning more and more profits. Now big businessmen can be given loans in hundreds and thousands of crores rupees at sub PLR rates whereas a small trader cannot expect loan below sub PLR rates. Exporters can be given bulk loan at subsidized rates. There is neck to neck competition among bankers to reduce their lending rates for home loan and car loan seekers. The more loans they ask for, the more discount they will get. All types of infrastructure benefits are now extended to business giants, and not small or middle sized businessmen.
It is ironical that banks even now boast for fulfilling social objective. Yes, they achieve the required ratio of lending in priority sector, but not by making fresh disbursement to small and middle borrowers but by including bigger and bigger loans in the domain of priority sector or by enlarging the activities in the domain of small borrowers. In this modern era even credit facilities upto Rs. 5.00 crores is considered as loan under priority sector.
Home loan up to Rs.50.00 lacs are considered as priority lending at lesser and lesser rates of interest. Here it is worthwhile to mention that loan of Rs.30 lacs can be taken only when house is of the value of at least Rs.40.00 (truly speaking such house may of Rs.50.00 to Rs.60 lacs keeping in mind the black money paid for each home sale). Car loan is given by banks at low rates and various discounts are being allowed to car buyers during festival season. But the million dollar question is who can afford buying a car? Can a common man (95% of population) afford a car?
Now can any one imagine that poor or middle class person having less than three lacs rupees as annual income can afford home loan of more than Rs.12 lacs because maximum permissible finance for home loan is four time of annual income in most of the banks.?
Can a person of income less than rupees three or four lacs can dream of buying a house of Rss.30.00 lacs (including black money) and can he afford repayment of loan of Rs.20.00 lacs by legal source of income?
Obviously banks are reducing lending rates for rich persons, they may be home loan seekers or buyer of costly car or they may be big trade houses, big exporters or large corporate houses.
It is not only banks which are crazy for big fishes. Even government is cutting tax or making such policies that cost on freezes, computers, laptops, mobiles, cars, scooter, wine, air travels is gradually coming down. On the contrary prices of essential commodities which are lifeline for poor and middle class people are sky rocketing day by day. Prices of potato,onion, tomato, green vegetables, pulses, wheat, rice, sugar, milk .and many more such things on which lie the survival of 95% of Indian population are rising up and up, not because of less production but because of faulty policy of the government. Hoarding, black marketing and profit making has become the accepted habit of rich traders and manufacturers.
Businessmen who have the capacity to store the goods of essential use can earn any profit by hoarding the same because government has given them unlimited freedom. Even education has become so costly that common men cannot imagine of quality higher education or even primary education in towns. Common men cannot imagine of cheap health care in government run hospitals and they have to pay unreasonable big amount for treatment in private nursing homes.
Who will take stern action?
Who will stop future trading in commodities?
Who will prevent hoarding and profit making in food items?
Who will prevent bankers extending credit facilities to rich and affluent class at sub PLR?
Obviously none. Because even Manmohan Singh, the Prime Minister of India tells that there is corruption rampant all where in the country, even he accepts that development fund given by government to different agencies do not reach in the hand of poor. Even PM tells that there is a need to check price rise immediately .But he is helpless and unable to prevent price rise. He cannot keep prices in control because he has given unlimited freedom to traders in the name of reformation. He also imagines just like a help less poor, like a common man and like average Indian imagines and curse the system.
After all who will cure the system when everyone cry and cry only against the cancerous disease of mal administration, corrupt and inefficient government machinery?
Who cares for poor?
Of course Bankers do not care at all and neither can they afford doing so.
If anyone is interested to know the reality I would like RBI to submit data on following two points so that educated class and so called economists and social reformers can understand the reality of social agenda of the bank.
Loans outstanding up to Rs. 5.00 lacs( including home loan , education loan, trade loan or agricultural loan ) as on 31.12.2005. 2006, 2007, 2008, 2009 and as on date and disbursed during these years .These data will tell the real story of social objective and tell whether poor and middle class men are really getting loans from banks.
Secondly to know the amount of bulk financing made by banks at Sub PLR ,year wise disbursement made by banks to rich people in the range of Rs.10 crores and above can also be obtained to compare the same with that made to common men up to Rs.5.00 lacs.
Danendra Jain
Agartala
26th September 2009
In the modern days i.e. after 1991or you can says in the age of economic reformation, liberalization and globalization, the approach of the government and also the bankers have completely changed. After 1991 social objective has in fact become a mask to conceal their hidden agenda of earning more and more profits. Now big businessmen can be given loans in hundreds and thousands of crores rupees at sub PLR rates whereas a small trader cannot expect loan below sub PLR rates. Exporters can be given bulk loan at subsidized rates. There is neck to neck competition among bankers to reduce their lending rates for home loan and car loan seekers. The more loans they ask for, the more discount they will get. All types of infrastructure benefits are now extended to business giants, and not small or middle sized businessmen.
It is ironical that banks even now boast for fulfilling social objective. Yes, they achieve the required ratio of lending in priority sector, but not by making fresh disbursement to small and middle borrowers but by including bigger and bigger loans in the domain of priority sector or by enlarging the activities in the domain of small borrowers. In this modern era even credit facilities upto Rs. 5.00 crores is considered as loan under priority sector.
Home loan up to Rs.50.00 lacs are considered as priority lending at lesser and lesser rates of interest. Here it is worthwhile to mention that loan of Rs.30 lacs can be taken only when house is of the value of at least Rs.40.00 (truly speaking such house may of Rs.50.00 to Rs.60 lacs keeping in mind the black money paid for each home sale). Car loan is given by banks at low rates and various discounts are being allowed to car buyers during festival season. But the million dollar question is who can afford buying a car? Can a common man (95% of population) afford a car?
Now can any one imagine that poor or middle class person having less than three lacs rupees as annual income can afford home loan of more than Rs.12 lacs because maximum permissible finance for home loan is four time of annual income in most of the banks.?
Can a person of income less than rupees three or four lacs can dream of buying a house of Rss.30.00 lacs (including black money) and can he afford repayment of loan of Rs.20.00 lacs by legal source of income?
Obviously banks are reducing lending rates for rich persons, they may be home loan seekers or buyer of costly car or they may be big trade houses, big exporters or large corporate houses.
It is not only banks which are crazy for big fishes. Even government is cutting tax or making such policies that cost on freezes, computers, laptops, mobiles, cars, scooter, wine, air travels is gradually coming down. On the contrary prices of essential commodities which are lifeline for poor and middle class people are sky rocketing day by day. Prices of potato,onion, tomato, green vegetables, pulses, wheat, rice, sugar, milk .and many more such things on which lie the survival of 95% of Indian population are rising up and up, not because of less production but because of faulty policy of the government. Hoarding, black marketing and profit making has become the accepted habit of rich traders and manufacturers.
Businessmen who have the capacity to store the goods of essential use can earn any profit by hoarding the same because government has given them unlimited freedom. Even education has become so costly that common men cannot imagine of quality higher education or even primary education in towns. Common men cannot imagine of cheap health care in government run hospitals and they have to pay unreasonable big amount for treatment in private nursing homes.
Who will take stern action?
Who will stop future trading in commodities?
Who will prevent hoarding and profit making in food items?
Who will prevent bankers extending credit facilities to rich and affluent class at sub PLR?
Obviously none. Because even Manmohan Singh, the Prime Minister of India tells that there is corruption rampant all where in the country, even he accepts that development fund given by government to different agencies do not reach in the hand of poor. Even PM tells that there is a need to check price rise immediately .But he is helpless and unable to prevent price rise. He cannot keep prices in control because he has given unlimited freedom to traders in the name of reformation. He also imagines just like a help less poor, like a common man and like average Indian imagines and curse the system.
After all who will cure the system when everyone cry and cry only against the cancerous disease of mal administration, corrupt and inefficient government machinery?
Who cares for poor?
Of course Bankers do not care at all and neither can they afford doing so.
If anyone is interested to know the reality I would like RBI to submit data on following two points so that educated class and so called economists and social reformers can understand the reality of social agenda of the bank.
Loans outstanding up to Rs. 5.00 lacs( including home loan , education loan, trade loan or agricultural loan ) as on 31.12.2005. 2006, 2007, 2008, 2009 and as on date and disbursed during these years .These data will tell the real story of social objective and tell whether poor and middle class men are really getting loans from banks.
Secondly to know the amount of bulk financing made by banks at Sub PLR ,year wise disbursement made by banks to rich people in the range of Rs.10 crores and above can also be obtained to compare the same with that made to common men up to Rs.5.00 lacs.
Danendra Jain
Agartala
26th September 2009
Monday, March 30, 2009
Indians are parking black money in Swiss Banks
There is no doubt that Indian money is being deposited at foreign bank and this has been continuing since long. Government of India has come out so many times in the past with schemes for voluntary disclosure of black money. It is government who first frame such rules which forces businessman to hide income and hoard black money either in Indian bank in fictitious name or in foreign based Swiss bank. Again it is government who instead of punishing the creator and hoarder of black money gives him an opportunity to get rid of punitive action under Voluntary Disclosure Schemes.
This is why businessmen hide money at foreign bank and always wait for new scheme for Voluntary disclosure and get immunity from legal action. Wrong culture has been inculcated in businessmen by the government only and it is bitter truth and undeniable fact that under such schemes officers and politicians also get an golden opportunity to convert black money ( earned by bribe and unfair means) into white money.
Black money is produced in Indian economy at greater speed than real white money. This black money is also invested in real estate or in Gold or in shares where ample opportunity is still available to conceal the black income. It is due to black money that in India all landed property , apartments, flats, commercial houses, shops or any type of building are traded at two rates , one for black money and one for white money. Flat of value of Rs.30.00 lacs will be sold in Rs. 10.00 lacs as while money and residual Rs. 20.00 lacs as black money for which no receipt is issued by seller of property. Registered deed is constructed for value of Rs.10.00 lac only. As such there is huge black money in Indian economy flowing for years and years without any interruption. Obviously real estate sector is the safest heaven to park black money for officers and traders as well.
After all, black money is the real engine of growth in all sectors. Even politicians will not survive if they do not take black money as donations from businessmen and servicemen .Political workers collect donations from all rich houses without issuing any bill or receipt or you can say without accounting for the same. Political parties account for money only to that extent which is received by cheque from big corporate houses.
It is an open secret that nine out of ten big and attractive houses built in any town or village is built by black money. An honest servicemen or true businessmen abiding all Income Tax rules strictly cannot imagine of having a house worth living. Most of luxurious cars are purchased only by those persons who have illegal income more than legal income.
Government need not therefore go to Swiss bank to verify and demand black money parked there. There is no need to place the matter at G20 meeting to demand disclosure of deposits of Indian parked in Swiss Banks. If there is strong will Government may get the culprit here itself and discover black money at least hundred times of what they suppose to be parked in foreign bank. But who will take such initiative seriously is the million dollar question. When all officers, political workers and all business houses are working in unison and in collusion with each other, none has guts to take strong initiative to stop the unhealthy practice flourishing in India for decades and decades. After all who will bell the cat when all are birds of the same feather?
Political leaders have been firing paper bullets on traders and officers for decades but from the core of their heart they play the same tune which hypnotizes traders and officers for contributing more and more for politicians and political parties. Traders, politicians and officers are made for each other and they cannot break their vicious circle without jeopardizing their survival in their area of operation. It is always the residual 90% of the population which have to suffer due to dominance of black sheep of the economy constituting hardly 10% of the population. Large scale corruption and sky rocketing price of all commodities , goods and services affects adversely the general mass and not at all the affluent class of traders, officers and politicians.
Danendra Jain Agartala
31st March 2009
This is why businessmen hide money at foreign bank and always wait for new scheme for Voluntary disclosure and get immunity from legal action. Wrong culture has been inculcated in businessmen by the government only and it is bitter truth and undeniable fact that under such schemes officers and politicians also get an golden opportunity to convert black money ( earned by bribe and unfair means) into white money.
Black money is produced in Indian economy at greater speed than real white money. This black money is also invested in real estate or in Gold or in shares where ample opportunity is still available to conceal the black income. It is due to black money that in India all landed property , apartments, flats, commercial houses, shops or any type of building are traded at two rates , one for black money and one for white money. Flat of value of Rs.30.00 lacs will be sold in Rs. 10.00 lacs as while money and residual Rs. 20.00 lacs as black money for which no receipt is issued by seller of property. Registered deed is constructed for value of Rs.10.00 lac only. As such there is huge black money in Indian economy flowing for years and years without any interruption. Obviously real estate sector is the safest heaven to park black money for officers and traders as well.
After all, black money is the real engine of growth in all sectors. Even politicians will not survive if they do not take black money as donations from businessmen and servicemen .Political workers collect donations from all rich houses without issuing any bill or receipt or you can say without accounting for the same. Political parties account for money only to that extent which is received by cheque from big corporate houses.
It is an open secret that nine out of ten big and attractive houses built in any town or village is built by black money. An honest servicemen or true businessmen abiding all Income Tax rules strictly cannot imagine of having a house worth living. Most of luxurious cars are purchased only by those persons who have illegal income more than legal income.
Government need not therefore go to Swiss bank to verify and demand black money parked there. There is no need to place the matter at G20 meeting to demand disclosure of deposits of Indian parked in Swiss Banks. If there is strong will Government may get the culprit here itself and discover black money at least hundred times of what they suppose to be parked in foreign bank. But who will take such initiative seriously is the million dollar question. When all officers, political workers and all business houses are working in unison and in collusion with each other, none has guts to take strong initiative to stop the unhealthy practice flourishing in India for decades and decades. After all who will bell the cat when all are birds of the same feather?
Political leaders have been firing paper bullets on traders and officers for decades but from the core of their heart they play the same tune which hypnotizes traders and officers for contributing more and more for politicians and political parties. Traders, politicians and officers are made for each other and they cannot break their vicious circle without jeopardizing their survival in their area of operation. It is always the residual 90% of the population which have to suffer due to dominance of black sheep of the economy constituting hardly 10% of the population. Large scale corruption and sky rocketing price of all commodities , goods and services affects adversely the general mass and not at all the affluent class of traders, officers and politicians.
Danendra Jain Agartala
31st March 2009
Monday, December 8, 2008
Try to understand Liquidity Crisis
Liquidity crisis facing the country is acute and government has taken one after other measures in the last two months to dilute the adverse effects of this liquidity crisis on the overall economy. I no doubt praise the sincere steps taken by Mr. P Chidambram Finance Minister and governor RBI to counter the financial attack caused by foreign based financial terrorists like Lehman Brothers ( not much different from Bin Laden , the renowned terrorist).
However It is astonishing that even after relentless efforts the problem of liquidity is not fully resolved (though RBI has been saying at the same time that banks have surplus fund and it is a fact too that banks are depositing their daily surplus with RBI despite low interest return).
It is to be understood why banks are hesitant to disburse credit to real estate sector or other SME or MSE sector inspite of easing liquidity.
It is to be assessed why businessmen are asking for bailout package when there is not much fall in sale and overall demand.
Government has to understand why there is normal tendency of borrowers not to repay the loan and advances availed by them from banks.
Government has to understand whether only cut in interest rate will stimulate the economy.
Is it not possible that too much cut in interest rate may cause disincentive to those who save and add to the problem of those old men whose livelihood depend on interest income.
Government must distinguish the liquidity crisis faced by individuals, banks, businessman, and the government itself from different angle of consideration.
I like to submit my views in brief which is though not exhaustive but point out some of the facts which may eventually lead to expose the real nature of liquidity crisis and enlighten the pros and cons of the matter.
Liquidity of Bank depends mainly on following three points: -----
1. Increase on deposits: As earning of people increases or expenses decreases, people deposit the same surplus in Banks or invest in other assets like home, vehicle etc., liquidity of bank will increase as much as people will deposit their surplus of income/profits in bank.
2. Loans and Advances made by banks: As credit by banks increases, the scope of trade or manufacturing or extending of services which in turn increases scope of creation of capital in the form of income. Liquidity of bank increases or decreases as advances of bank decreases or increases.
3. Repayment received from existing borrowers: When banks give loan to any person or institution, they expect the same is repaid by borrower in periodical installment or in case of working capital at least sale is deposited in bank. As such when all borrowers repays the banks loan regularly as per EMI (equated monthly installment) fixed by banks, banks are able to manage their Asset and Liability (called as ALM) gainfully without disturbing the liquidity. But when repayments are less than what are expected, banks face the problem of liquidity.
4. External factors like global slowdown causing huge withdrawal by FII or faulty policies of the government or weakness of the regulating and administrative systems and procedures or dilution in public trust on a particular bank causing panic in depositors and hence unwarranted withdrawal or large scale fraudulent affairs going on in any bank and so on ……
If we look at above four points seriously and ponder over the same we understand that liquidity is adversely affected by mainly
a. When deposit does not increase i.e. when income of people goes down or people start spending more than what they earn. Liquidity of Individuals or businessman when dries or shrinks, they contribute the same crisis to banks and financial institutions.
b. When banks extend loan and advances more than what they are capacitated to.
It is worthwhile to mention here that out of deposits received by bank, 24% of the same is deposited with government of India as SLR and 5% as CRR and at least 1% is used for infrastructure and establishment cost of the bank. Obviously maximum Credit deposit ratio may be allowed to be 70% (in the olden days CD ratio used to be less than 60%).
If any bank lends under pressure of the government more than 70% of available deposits it mobilizes, problem of liquidity is supposed to arise.
Also when banks writes off loan or sacrifices their money to bad borrowers either willfully or under instruction from the government more than the level of their absorbing capacity, banks face the problem of liquidity.
c. When people who have taken loan and advances from the bank do not repay the installment in time or when working capital financed by banks is either consumed by borrower or do not create turnover in bank. In common terminology, such type of loan is categorized as Non Performing Asset (NPA). As such when real NPA (not only what bank declare but also what banks hide) increases, liquidity problem in banks increases.
d. When bank is victim of mischievous and fraudulent employees or wrongful policies of the government and undue political interference in the banking system or incapability of recovery mechanism to recover the money from bad borrowers.
Here I would like to say that main reasons of liquidity crisis in banks may be as follows:
1. People’s expenses have increased far more than their increases in income. As such rate of savings has gone down.
2. Bank’s lending has increased more than their capacity. To make it more clear banks CD ratio has gone above 70% in many cases which forces banks either to offer higher rates on interest on deposits they acquire from the market or to borrow fund from RBI. Also banks deposit is not growing in the desired ratio due to sharp fall in earning of people and sharp increase in their spending.
3. Borrowers are not repaying the loan wither willfully or due to sickness in their business or due to higher spending. In other words real NPA of banks have increased abnormally due to vote bank politics prevailing in the country, the problem of liquidity in banks has aggravated.
4. Banks are unable to recover the bad loans from defaulters due to inefficient system and forced to write off large amount of bad loans or sacrifice large amount in compromising with large defaulters.
5. Large withdrawal of fund from depositors due to erosion in trust on the bank. When bank’s image is tarnished or bank is likely to fail due to internal irregularities , depositors are tempted to withdraw money from the bank even if they do not need and in this way they cause the shrinking of liquidity in banks or one can say they add fuel to fire.
I am of strong view that the present problem of liquidity is more due to faults in policies adopted by our government during last two decades of unregulated reformation, privatization and globalization and weaknesses of the system which may be poitical, social, judicial or administrative. It means that or system and procedure were not strengthened and empowered adequately to deal with the situation likely to arise in free economy. Our environment, infrastructure and our people are not as advanced, cultured and disciplined as it is in other developed countries which whom Indian economy intends to compete.
Obviously it will not be absolutely correct if we say that “Withdrawal by FII (Foreign Institutional Investors)” or “Global Financial Crisis caused by subprime mortgages” is the main reason behind liquidity crisis faced by the Indian banks.
Of course global crisis has added new dimension to crisis forcing government to reduce repo rate (6.5%), reverse repo rate (5%), CRR (5%) and SLR (24%) to historic low level and also to announce many other bailout packages for industries in line with the trend set by other developed countries of the world.
As such the global crisis has undoubtedly added fuel to already existing fire in the banks, but definitely is not the main and absolute reason of the crisis as claimed by our political leaders and as endorsed by sycophant economists.
If we do not assess the internal weakness of the banking and continue to claim that our banks are strong and harp on our achievements based on the fabricated and concocted figures, our banks will very soon lend in more severe trouble zone when most of the banks will be on the verge of bankruptcy as is presently happening in USA and other countries.
We must at least try to learn lessons from the failure of unimaginable big banks like Citi group and Lehman Brothers, in other countries to ensure real safety of our Indian banks and we must bring about desired improvement in the Indian banking system.
We must look deep into the balance sheet of different Indian Banks to understand the liquidity problem of individual banks and then try to diagnose. It will be prove to be harmful if government or RBI provides the same relaxation to all banks. This happens in the same way as liquidity problem happens in case of individual and which differs from person to person. Similarly liquidity problem of India differs from that of USA, Japan and other courties.
In our country if tax collection is less compared to government’s normal spending, our country will face liquidity problem. If our government uses the inflow of revenue in distributing charity and payment of interest on borrowings in greater numbers, government has to face liquidity problem.
As such need of the hour is true introspection of the system and rejuvenate the ailing system in time and not to blame entirely external factors for the prevailing liquidity crisis. Same medicine cannot be prescribed to all when the sickness of different individuals is different.
But as of now government appears to have injected same medicine in the blood of all ailing banks. Similarly government is trying to solve the problem of industrialists and traders by forcing banks to bring about reduction in lending rates.
Perhaps government is playing with fire only in view of forthcoming election and inclined to postpone taking harsh steps for the next government .Lest it should become too late to control the fire.
Danendra Jain,
8th December 2008
However It is astonishing that even after relentless efforts the problem of liquidity is not fully resolved (though RBI has been saying at the same time that banks have surplus fund and it is a fact too that banks are depositing their daily surplus with RBI despite low interest return).
It is to be understood why banks are hesitant to disburse credit to real estate sector or other SME or MSE sector inspite of easing liquidity.
It is to be assessed why businessmen are asking for bailout package when there is not much fall in sale and overall demand.
Government has to understand why there is normal tendency of borrowers not to repay the loan and advances availed by them from banks.
Government has to understand whether only cut in interest rate will stimulate the economy.
Is it not possible that too much cut in interest rate may cause disincentive to those who save and add to the problem of those old men whose livelihood depend on interest income.
Government must distinguish the liquidity crisis faced by individuals, banks, businessman, and the government itself from different angle of consideration.
I like to submit my views in brief which is though not exhaustive but point out some of the facts which may eventually lead to expose the real nature of liquidity crisis and enlighten the pros and cons of the matter.
Liquidity of Bank depends mainly on following three points: -----
1. Increase on deposits: As earning of people increases or expenses decreases, people deposit the same surplus in Banks or invest in other assets like home, vehicle etc., liquidity of bank will increase as much as people will deposit their surplus of income/profits in bank.
2. Loans and Advances made by banks: As credit by banks increases, the scope of trade or manufacturing or extending of services which in turn increases scope of creation of capital in the form of income. Liquidity of bank increases or decreases as advances of bank decreases or increases.
3. Repayment received from existing borrowers: When banks give loan to any person or institution, they expect the same is repaid by borrower in periodical installment or in case of working capital at least sale is deposited in bank. As such when all borrowers repays the banks loan regularly as per EMI (equated monthly installment) fixed by banks, banks are able to manage their Asset and Liability (called as ALM) gainfully without disturbing the liquidity. But when repayments are less than what are expected, banks face the problem of liquidity.
4. External factors like global slowdown causing huge withdrawal by FII or faulty policies of the government or weakness of the regulating and administrative systems and procedures or dilution in public trust on a particular bank causing panic in depositors and hence unwarranted withdrawal or large scale fraudulent affairs going on in any bank and so on ……
If we look at above four points seriously and ponder over the same we understand that liquidity is adversely affected by mainly
a. When deposit does not increase i.e. when income of people goes down or people start spending more than what they earn. Liquidity of Individuals or businessman when dries or shrinks, they contribute the same crisis to banks and financial institutions.
b. When banks extend loan and advances more than what they are capacitated to.
It is worthwhile to mention here that out of deposits received by bank, 24% of the same is deposited with government of India as SLR and 5% as CRR and at least 1% is used for infrastructure and establishment cost of the bank. Obviously maximum Credit deposit ratio may be allowed to be 70% (in the olden days CD ratio used to be less than 60%).
If any bank lends under pressure of the government more than 70% of available deposits it mobilizes, problem of liquidity is supposed to arise.
Also when banks writes off loan or sacrifices their money to bad borrowers either willfully or under instruction from the government more than the level of their absorbing capacity, banks face the problem of liquidity.
c. When people who have taken loan and advances from the bank do not repay the installment in time or when working capital financed by banks is either consumed by borrower or do not create turnover in bank. In common terminology, such type of loan is categorized as Non Performing Asset (NPA). As such when real NPA (not only what bank declare but also what banks hide) increases, liquidity problem in banks increases.
d. When bank is victim of mischievous and fraudulent employees or wrongful policies of the government and undue political interference in the banking system or incapability of recovery mechanism to recover the money from bad borrowers.
Here I would like to say that main reasons of liquidity crisis in banks may be as follows:
1. People’s expenses have increased far more than their increases in income. As such rate of savings has gone down.
2. Bank’s lending has increased more than their capacity. To make it more clear banks CD ratio has gone above 70% in many cases which forces banks either to offer higher rates on interest on deposits they acquire from the market or to borrow fund from RBI. Also banks deposit is not growing in the desired ratio due to sharp fall in earning of people and sharp increase in their spending.
3. Borrowers are not repaying the loan wither willfully or due to sickness in their business or due to higher spending. In other words real NPA of banks have increased abnormally due to vote bank politics prevailing in the country, the problem of liquidity in banks has aggravated.
4. Banks are unable to recover the bad loans from defaulters due to inefficient system and forced to write off large amount of bad loans or sacrifice large amount in compromising with large defaulters.
5. Large withdrawal of fund from depositors due to erosion in trust on the bank. When bank’s image is tarnished or bank is likely to fail due to internal irregularities , depositors are tempted to withdraw money from the bank even if they do not need and in this way they cause the shrinking of liquidity in banks or one can say they add fuel to fire.
I am of strong view that the present problem of liquidity is more due to faults in policies adopted by our government during last two decades of unregulated reformation, privatization and globalization and weaknesses of the system which may be poitical, social, judicial or administrative. It means that or system and procedure were not strengthened and empowered adequately to deal with the situation likely to arise in free economy. Our environment, infrastructure and our people are not as advanced, cultured and disciplined as it is in other developed countries which whom Indian economy intends to compete.
Obviously it will not be absolutely correct if we say that “Withdrawal by FII (Foreign Institutional Investors)” or “Global Financial Crisis caused by subprime mortgages” is the main reason behind liquidity crisis faced by the Indian banks.
Of course global crisis has added new dimension to crisis forcing government to reduce repo rate (6.5%), reverse repo rate (5%), CRR (5%) and SLR (24%) to historic low level and also to announce many other bailout packages for industries in line with the trend set by other developed countries of the world.
As such the global crisis has undoubtedly added fuel to already existing fire in the banks, but definitely is not the main and absolute reason of the crisis as claimed by our political leaders and as endorsed by sycophant economists.
If we do not assess the internal weakness of the banking and continue to claim that our banks are strong and harp on our achievements based on the fabricated and concocted figures, our banks will very soon lend in more severe trouble zone when most of the banks will be on the verge of bankruptcy as is presently happening in USA and other countries.
We must at least try to learn lessons from the failure of unimaginable big banks like Citi group and Lehman Brothers, in other countries to ensure real safety of our Indian banks and we must bring about desired improvement in the Indian banking system.
We must look deep into the balance sheet of different Indian Banks to understand the liquidity problem of individual banks and then try to diagnose. It will be prove to be harmful if government or RBI provides the same relaxation to all banks. This happens in the same way as liquidity problem happens in case of individual and which differs from person to person. Similarly liquidity problem of India differs from that of USA, Japan and other courties.
In our country if tax collection is less compared to government’s normal spending, our country will face liquidity problem. If our government uses the inflow of revenue in distributing charity and payment of interest on borrowings in greater numbers, government has to face liquidity problem.
As such need of the hour is true introspection of the system and rejuvenate the ailing system in time and not to blame entirely external factors for the prevailing liquidity crisis. Same medicine cannot be prescribed to all when the sickness of different individuals is different.
But as of now government appears to have injected same medicine in the blood of all ailing banks. Similarly government is trying to solve the problem of industrialists and traders by forcing banks to bring about reduction in lending rates.
Perhaps government is playing with fire only in view of forthcoming election and inclined to postpone taking harsh steps for the next government .Lest it should become too late to control the fire.
Danendra Jain,
8th December 2008
Reality of liquidity Crisis
Liquidity crisis facing the country is acute and government has taken one after other measures in the last two months to dilute the adverse effects of this liquidity crisis on the overall economy. I no doubt praise the sincere steps taken by Mr. P Chidambram Finance Minister and governor RBI to counter the financial attack caused by foreign based financial terrorists like Lehman Brothers ( not much different from Bin Laden , the renowned terrorist).
However It is astonishing that even after relentless efforts the problem of liquidity is not fully resolved (though RBI has been saying at the same time that banks have surplus fund and it is a fact too that banks are depositing their daily surplus with RBI despite low interest return).
It is to be understood why banks are hesitant to disburse credit to real estate sector or other SME or MSE sector inspite of easing liquidity.
It is to be assessed why businessmen are asking for bailout package when there is not much fall in sale and overall demand.
Government has to understand why there is normal tendency of borrowers not to repay the loan and advances availed by them from banks.
Government has to understand whether only cut in interest rate will stimulate the economy.
Is it not possible that too much cut in interest rate may cause disincentive to those who save and add to the problem of those old men whose livelihood depend on interest income.
Government must distinguish the liquidity crisis faced by individuals, banks, businessman, and the government itself from different angle of consideration.
I like to submit my views in brief which is though not exhaustive but point out some of the facts which may eventually lead to expose the real nature of liquidity crisis and enlighten the pros and cons of the matter.
Liquidity of Bank depends mainly on following three points: -----
1. Increase on deposits: As earning of people increases or expenses decreases, people deposit the same surplus in Banks or invest in other assets like home, vehicle etc., liquidity of bank will increase as much as people will deposit their surplus of income/profits in bank.
2. Loans and Advances made by banks: As credit by banks increases, the scope of trade or manufacturing or extending of services which in turn increases scope of creation of capital in the form of income. Liquidity of bank increases or decreases as advances of bank decreases or increases.
3. Repayment received from existing borrowers: When banks give loan to any person or institution, they expect the same is repaid by borrower in periodical installment or in case of working capital at least sale is deposited in bank. As such when all borrowers repays the banks loan regularly as per EMI (equated monthly installment) fixed by banks, banks are able to manage their Asset and Liability (called as ALM) gainfully without disturbing the liquidity. But when repayments are less than what are expected, banks face the problem of liquidity.
4. External factors like global slowdown causing huge withdrawal by FII or faulty policies of the government or weakness of the regulating and administrative systems and procedures or dilution in public trust on a particular bank causing panic in depositors and hence unwarranted withdrawal or large scale fraudulent affairs going on in any bank and so on ……
If we look at above four points seriously and ponder over the same we understand that liquidity is adversely affected by mainly
a. When deposit does not increase i.e. when income of people goes down or people start spending more than what they earn. Liquidity of Individuals or businessman when dries or shrinks, they contribute the same crisis to banks and financial institutions.
b. When banks extend loan and advances more than what they are capacitated to.
It is worthwhile to mention here that out of deposits received by bank, 24% of the same is deposited with government of India as SLR and 5% as CRR and at least 1% is used for infrastructure and establishment cost of the bank. Obviously maximum Credit deposit ratio may be allowed to be 70% (in the olden days CD ratio used to be less than 60%).
If any bank lends under pressure of the government more than 70% of available deposits it mobilizes, problem of liquidity is supposed to arise.
Also when banks writes off loan or sacrifices their money to bad borrowers either willfully or under instruction from the government more than the level of their absorbing capacity, banks face the problem of liquidity.
c. When people who have taken loan and advances from the bank do not repay the installment in time or when working capital financed by banks is either consumed by borrower or do not create turnover in bank. In common terminology, such type of loan is categorized as Non Performing Asset (NPA). As such when real NPA (not only what bank declare but also what banks hide) increases, liquidity problem in banks increases.
d. When bank is victim of mischievous and fraudulent employees or wrongful policies of the government and undue political interference in the banking system or incapability of recovery mechanism to recover the money from bad borrowers.
Here I would like to say that main reasons of liquidity crisis in banks may be as follows:
1. People’s expenses have increased far more than their increases in income. As such rate of savings has gone down.
2. Bank’s lending has increased more than their capacity. To make it more clear banks CD ratio has gone above 70% in many cases which forces banks either to offer higher rates on interest on deposits they acquire from the market or to borrow fund from RBI. Also banks deposit is not growing in the desired ratio due to sharp fall in earning of people and sharp increase in their spending.
3. Borrowers are not repaying the loan wither willfully or due to sickness in their business or due to higher spending. In other words real NPA of banks have increased abnormally due to vote bank politics prevailing in the country, the problem of liquidity in banks has aggravated.
4. Banks are unable to recover the bad loans from defaulters due to inefficient system and forced to write off large amount of bad loans or sacrifice large amount in compromising with large defaulters.
5. Large withdrawal of fund from depositors due to erosion in trust on the bank. When bank’s image is tarnished or bank is likely to fail due to internal irregularities , depositors are tempted to withdraw money from the bank even if they do not need and in this way they cause the shrinking of liquidity in banks or one can say they add fuel to fire.
I am of strong view that the present problem of liquidity is more due to faults in policies adopted by our government during last two decades of unregulated reformation, privatization and globalization and weaknesses of the system which may be poitical, social, judicial or administrative. It means that or system and procedure were not strengthened and empowered adequately to deal with the situation likely to arise in free economy. Our environment, infrastructure and our people are not as advanced, cultured and disciplined as it is in other developed countries which whom Indian economy intends to compete.
Obviously it will not be absolutely correct if we say that “Withdrawal by FII (Foreign Institutional Investors)” or “Global Financial Crisis caused by subprime mortgages” is the main reason behind liquidity crisis faced by the Indian banks.
Of course global crisis has added new dimension to crisis forcing government to reduce repo rate (6.5%), reverse repo rate (5%), CRR (5%) and SLR (24%) to historic low level and also to announce many other bailout packages for industries in line with the trend set by other developed countries of the world.
As such the global crisis has undoubtedly added fuel to already existing fire in the banks, but definitely is not the main and absolute reason of the crisis as claimed by our political leaders and as endorsed by sycophant economists.
If we do not assess the internal weakness of the banking and continue to claim that our banks are strong and harp on our achievements based on the fabricated and concocted figures, our banks will very soon lend in more severe trouble zone when most of the banks will be on the verge of bankruptcy as is presently happening in USA and other countries.
We must at least try to learn lessons from the failure of unimaginable big banks like Citi group and Lehman Brothers, in other countries to ensure real safety of our Indian banks and we must bring about desired improvement in the Indian banking system.
We must look deep into the balance sheet of different Indian Banks to understand the liquidity problem of individual banks and then try to diagnose. It will be prove to be harmful if government or RBI provides the same relaxation to all banks. This happens in the same way as liquidity problem happens in case of individual and which differs from person to person. Similarly liquidity problem of India differs from that of USA, Japan and other courties.
In our country if tax collection is less compared to government’s normal spending, our country will face liquidity problem. If our government uses the inflow of revenue in distributing charity and payment of interest on borrowings in greater numbers, government has to face liquidity problem.
As such need of the hour is true introspection of the system and rejuvenate the ailing system in time and not to blame entirely external factors for the prevailing liquidity crisis. Same medicine cannot be prescribed to all when the sickness of different individuals is different.
But as of now government appears to have injected same medicine in the blood of all ailing banks. Similarly government is trying to solve the problem of industrialists and traders by forcing banks to bring about reduction in lending rates.
Perhaps government is playing with fire only in view of forthcoming election and inclined to postpone taking harsh steps for the next government .Lest it should become too late to control the fire.
Danendra Jain,
However It is astonishing that even after relentless efforts the problem of liquidity is not fully resolved (though RBI has been saying at the same time that banks have surplus fund and it is a fact too that banks are depositing their daily surplus with RBI despite low interest return).
It is to be understood why banks are hesitant to disburse credit to real estate sector or other SME or MSE sector inspite of easing liquidity.
It is to be assessed why businessmen are asking for bailout package when there is not much fall in sale and overall demand.
Government has to understand why there is normal tendency of borrowers not to repay the loan and advances availed by them from banks.
Government has to understand whether only cut in interest rate will stimulate the economy.
Is it not possible that too much cut in interest rate may cause disincentive to those who save and add to the problem of those old men whose livelihood depend on interest income.
Government must distinguish the liquidity crisis faced by individuals, banks, businessman, and the government itself from different angle of consideration.
I like to submit my views in brief which is though not exhaustive but point out some of the facts which may eventually lead to expose the real nature of liquidity crisis and enlighten the pros and cons of the matter.
Liquidity of Bank depends mainly on following three points: -----
1. Increase on deposits: As earning of people increases or expenses decreases, people deposit the same surplus in Banks or invest in other assets like home, vehicle etc., liquidity of bank will increase as much as people will deposit their surplus of income/profits in bank.
2. Loans and Advances made by banks: As credit by banks increases, the scope of trade or manufacturing or extending of services which in turn increases scope of creation of capital in the form of income. Liquidity of bank increases or decreases as advances of bank decreases or increases.
3. Repayment received from existing borrowers: When banks give loan to any person or institution, they expect the same is repaid by borrower in periodical installment or in case of working capital at least sale is deposited in bank. As such when all borrowers repays the banks loan regularly as per EMI (equated monthly installment) fixed by banks, banks are able to manage their Asset and Liability (called as ALM) gainfully without disturbing the liquidity. But when repayments are less than what are expected, banks face the problem of liquidity.
4. External factors like global slowdown causing huge withdrawal by FII or faulty policies of the government or weakness of the regulating and administrative systems and procedures or dilution in public trust on a particular bank causing panic in depositors and hence unwarranted withdrawal or large scale fraudulent affairs going on in any bank and so on ……
If we look at above four points seriously and ponder over the same we understand that liquidity is adversely affected by mainly
a. When deposit does not increase i.e. when income of people goes down or people start spending more than what they earn. Liquidity of Individuals or businessman when dries or shrinks, they contribute the same crisis to banks and financial institutions.
b. When banks extend loan and advances more than what they are capacitated to.
It is worthwhile to mention here that out of deposits received by bank, 24% of the same is deposited with government of India as SLR and 5% as CRR and at least 1% is used for infrastructure and establishment cost of the bank. Obviously maximum Credit deposit ratio may be allowed to be 70% (in the olden days CD ratio used to be less than 60%).
If any bank lends under pressure of the government more than 70% of available deposits it mobilizes, problem of liquidity is supposed to arise.
Also when banks writes off loan or sacrifices their money to bad borrowers either willfully or under instruction from the government more than the level of their absorbing capacity, banks face the problem of liquidity.
c. When people who have taken loan and advances from the bank do not repay the installment in time or when working capital financed by banks is either consumed by borrower or do not create turnover in bank. In common terminology, such type of loan is categorized as Non Performing Asset (NPA). As such when real NPA (not only what bank declare but also what banks hide) increases, liquidity problem in banks increases.
d. When bank is victim of mischievous and fraudulent employees or wrongful policies of the government and undue political interference in the banking system or incapability of recovery mechanism to recover the money from bad borrowers.
Here I would like to say that main reasons of liquidity crisis in banks may be as follows:
1. People’s expenses have increased far more than their increases in income. As such rate of savings has gone down.
2. Bank’s lending has increased more than their capacity. To make it more clear banks CD ratio has gone above 70% in many cases which forces banks either to offer higher rates on interest on deposits they acquire from the market or to borrow fund from RBI. Also banks deposit is not growing in the desired ratio due to sharp fall in earning of people and sharp increase in their spending.
3. Borrowers are not repaying the loan wither willfully or due to sickness in their business or due to higher spending. In other words real NPA of banks have increased abnormally due to vote bank politics prevailing in the country, the problem of liquidity in banks has aggravated.
4. Banks are unable to recover the bad loans from defaulters due to inefficient system and forced to write off large amount of bad loans or sacrifice large amount in compromising with large defaulters.
5. Large withdrawal of fund from depositors due to erosion in trust on the bank. When bank’s image is tarnished or bank is likely to fail due to internal irregularities , depositors are tempted to withdraw money from the bank even if they do not need and in this way they cause the shrinking of liquidity in banks or one can say they add fuel to fire.
I am of strong view that the present problem of liquidity is more due to faults in policies adopted by our government during last two decades of unregulated reformation, privatization and globalization and weaknesses of the system which may be poitical, social, judicial or administrative. It means that or system and procedure were not strengthened and empowered adequately to deal with the situation likely to arise in free economy. Our environment, infrastructure and our people are not as advanced, cultured and disciplined as it is in other developed countries which whom Indian economy intends to compete.
Obviously it will not be absolutely correct if we say that “Withdrawal by FII (Foreign Institutional Investors)” or “Global Financial Crisis caused by subprime mortgages” is the main reason behind liquidity crisis faced by the Indian banks.
Of course global crisis has added new dimension to crisis forcing government to reduce repo rate (6.5%), reverse repo rate (5%), CRR (5%) and SLR (24%) to historic low level and also to announce many other bailout packages for industries in line with the trend set by other developed countries of the world.
As such the global crisis has undoubtedly added fuel to already existing fire in the banks, but definitely is not the main and absolute reason of the crisis as claimed by our political leaders and as endorsed by sycophant economists.
If we do not assess the internal weakness of the banking and continue to claim that our banks are strong and harp on our achievements based on the fabricated and concocted figures, our banks will very soon lend in more severe trouble zone when most of the banks will be on the verge of bankruptcy as is presently happening in USA and other countries.
We must at least try to learn lessons from the failure of unimaginable big banks like Citi group and Lehman Brothers, in other countries to ensure real safety of our Indian banks and we must bring about desired improvement in the Indian banking system.
We must look deep into the balance sheet of different Indian Banks to understand the liquidity problem of individual banks and then try to diagnose. It will be prove to be harmful if government or RBI provides the same relaxation to all banks. This happens in the same way as liquidity problem happens in case of individual and which differs from person to person. Similarly liquidity problem of India differs from that of USA, Japan and other courties.
In our country if tax collection is less compared to government’s normal spending, our country will face liquidity problem. If our government uses the inflow of revenue in distributing charity and payment of interest on borrowings in greater numbers, government has to face liquidity problem.
As such need of the hour is true introspection of the system and rejuvenate the ailing system in time and not to blame entirely external factors for the prevailing liquidity crisis. Same medicine cannot be prescribed to all when the sickness of different individuals is different.
But as of now government appears to have injected same medicine in the blood of all ailing banks. Similarly government is trying to solve the problem of industrialists and traders by forcing banks to bring about reduction in lending rates.
Perhaps government is playing with fire only in view of forthcoming election and inclined to postpone taking harsh steps for the next government .Lest it should become too late to control the fire.
Danendra Jain,
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