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Why the bad debts of the banks are surging?

Akhilesh Bhargava

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Why is it that the bad debts of the banks are surging slowly and steadily and why is it that the NPAs of the banks have been on the constant rise? Mr Akhilesh Bhargava, Business Editor of HW News Network shares his insights on the matter in the video.

Banking

₹ 28,000 crore lifeline for Government

News Desk

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Shaktikanta

An increasingly accommodative Reserve Bank of India (RBI) under its new Governor Shaktikanta Das will, after cutting benchmark interest rates to 6.25% earlier this month, transfer an additional ₹ 28,000 crore to the government as interim dividend, after a decision was taken in this regard after its central board met on Monday. This fresh infusion of money will help the government meet its revised fiscal deficit target of 3.4% of GDP for the year 2018-19 amid a short fall in revenue collection.

This is the second consecutive year that the RBI has transferred an interim dividend and this amount is in addition to the ₹ 40,000 crore already transferred.

What is interesting to note is that unlike the government which follows the April to March financial year, the RBI follows a June to July financial year. Therefore, the central bank usually closes its books of accounts in July and transfers surplus earned during the year in the form of dividend in August. Ideally, the RBI should wait for the entire year to conclude before declaring surplus in the form of dividends and this practice of declaring an interim dividend in the middle of the year is not a good one because the future income of the RBI, which is suppose to be for the whole year, is being prepaid, and in case of central banks, things can change suddenly at any point of time and they could be in need of such money.

 

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Banking

Yes Bank Stop Misleading

Akhilesh Bhargava

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All has not been good with Yes Bank and it continues to be not so. It was the refusal of the RBI to not renew the appointment of Rana Kapoor as the CEO of Yes Bank, leading to his ignominious exit, which confirmed our suspicions that all was not well with it. It was always known, though not publicly, that the first Asset Quality Review conducted by the RBI of Yes Bank in 2015, had reported severe accounting, regulatory and disclosure malpractices at Yes Bank, which included the manipulation of its financial statements, huge loans given in violation of its own lending policies and serious regulatory and corporate non compliance. In fact Yes Bank had no serious culture of regulatory compliance, indicating poor or no respect for the regulation and the regulator.

 

In other words the audited financial statements of the Bank were false, or at best a half truth. The primary issue was one of hiding its losses, and thus inflating its profits to the tune of thousands of crores. It under reported its bad loans to the tune of Rs.4176 crores in 2015-16 and Rs.8373 crores in 2016-17. The fact that Yes Bank blatantly manipulated its financial statements year after year, meant that either the RBI went soft on its CEO the leader of these shady practices, and thus did not sack him or that Rana Kapoor was supremely confident of managing and gaming the system, which explains why despite such a serious misconduct, for many years; he was not sacked by the RBI in 2015 itself.

 

A sternly warned and chastised Yes Bank, was however forced to come clean with its books of accounts in 2017-18. It was not because it had mended its ways, but with the dismissal of Rana Kapoor, it was forced to do so, after years of blatant violations and misconduct. In a recent filing with the stock exchanges, Yes Bank triumphantly announced that in its Risk Assessment Report for 2017-18, the RBI observed NIL discrepancies in the bank’s assets clarification income recognition and provisioning. Yes Bank thus implied that the RBI had given it a clean chit and that all is good now and that it has regained regulatory credibility. The market cheered the Yes Bank stock, its share prices went up by 32% in a single day and brokerages and analysts recommended it with a ‘buy’ rating. A stock that was hitherto viewed with suspicion and treated as junk, was overnight now being recommended for investment. Investors rejoiced that the balance sheet of Yes Bank was now squeaky clean and that notion arose due to the misleading letter of Yes Bank to the stock markets.

 

This misleading information by Yes Bank, did not go unnoticed. In a stern letter to Yes Bank, the RBI expressed its displeasure and warned that it will face stringent regulatory action for not just making a confidential report public, but that it also did not reveal the many lapses of Yes Bank and was thus a deliberate attempt to mislead the public. The said report had identified several lapses and regulatory breaches in various areas of the bank’s functioning, which it did not mention in its stock exchange filing. It also said that a nil divergence as tomtommed by Yes Bank is no achievement to be published, but only a compliance, which is a statutory duty of the Bank.

 

It is apparent from RBI’s sharp rap on the knuckles of Yes Bank, that it has given no clean chit to the bank and serious skeletons abound in its cupboard. The dubious conduct of Yes Bank in misleading the public, which started with its false financial statements continues.

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Business Tit-Bits

What was the Harshad Mehta tax story?

Akhilesh Bhargava

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The original Big Bull of the stock market, Harshad Mehta, was being investigated by numerous authorities for the 1992 stock market scam he perpetrated. The Income Tax Department conducted raids at numerous premises of Harshad Mehta and family and siezed many documents amongs other evidences. However, there was no black money involved as the source of all money recieved was from banks and all transactions were well documented. The IT Dept gave him and his family a hard time by adding frivolous income to his total taxable amount and this case went on for 27 years, even after Harshad had himself passed away. Finally, the ITAT, the final fact finding authority, srapped most of the additions to his income of over 2,000 crore ₹ which the IT Dept had made and further went on to make some observations of their own. Unfortunately, this is also the case with most taxpayers that IT Authorities in spite of having a low success rate, tend to keep appealing the matter without a genuine case, thereby causing much difficulty to small and medium tax payers.

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