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Volume VI Issue 1 Mumbai, August 2018, Pages: 68 ` 60

Liquidity Risk Management

Structural Issues, Behavioural Biases and Managerial Myopia
 EDITOR’S NOTE
Indian Banks’ Association
Head Office:
Blocks 2 . 3, Stadium House, 6th Floor, 81-83
Veer Nariman Road, Mumbai 400 020, India.
Tel + 91-22-22824846

Editorial Office:
World Trade Centre, Centre 1, 6th Floor, Cuffe
Parade, Mumbai 400 005, India.

Tel : + 91-22-22174019
Fax: + 91-22-22184222
Editor’s Note
Website: iba.org.in, theindianbanker.co.in
e-mail: vp.corpcomm@iba.org.in,
mgr2.corpcomm@iba.org.in

Liquidity risk does not gain importance for banks until it assumes a crisis
proportion. In the cover story of this issue, Dr Ashish Srivastava looks into the
Chief Executive . Editor
‘structural issues, behavioural biases and managerial myopia’ in liquidity risk
V G Kannan
management by banks with a special focus on urban cooperative banks. He
brings out the key characteristics of liquidity risk, its dependence on external
factors, and outlines the pitfalls to avoid so that liquidity risk does not snowball
IBA Secretariat into a run on the bank. In another well-researched article, Dr Tapas Kumar
Jaya G Puthli Parida traces the history of Indian banking since independence with emphasis
Vice President on banking reforms, emergence of public sector banks (PSBs) and the present
Suresh Shroff challenges they face. He examines global and domestic experience in bank
Manager mergers and acquisitions, to suggest that ‘Consolidations of PSBs’ is likely to
result in a number of long-term benefits for shareholders and customers of the
banks and also for the national economy.
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inspection of securities charged to the bank as an important tool of risk
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Dibaker Lenka explains the role of whistleblower in strengthening vigilance
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resolution of stressed assets while and Manjula Wadhwa stresses on the need
Printed and published by V G Kannan on behalf of for financial literacy as a tool for rural development. A review of the book on
Indian Banks’ Association, printed at Printrade Issue
‘Managing Portfolio Credit Risk in Banks’ completes the issue.
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316, N. M. Joshi Marg, Lower Parel, Mumbai-400 011
and published at Indian Banks’ Association, Stadium
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Editor: V G Kannan

The views expressed in The Indian Banker are not necessarily

the views of the Indian Banks’ Association or the
bank/institution to which the author belongs.
V G Kannan
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Vol VI No. 1 - August 2018 The Indian Banker 3

 COVER STORY

Vision
To work proactively for the growth of a
healthy, professional and forward looking,
banking and financial services industry, in a
manner consistent with public good.

Office Bearers
Deputy Chairmen
M O Rego
Shyam Srinivasan

Rajnish Kumar
COVER STORY

Honorary Secretary

Liquidity Risk
Dr N Kamakodi
14
Members
Rajeev Rishi Rajkiran Rai G
Management
Usha Ananthasubramanian Chanda Kochhar Structural Issues, Behavioural Biases and
Shikha Sharma
Managerial Myopia
Rakesh Sharma
- Dr Ashish Srivastava
P S Jayakumar P N Vasudevan

R K Takkar Pramit Jhaveri

J K Garg Ravneetsingh Gill ARTICLE

Pawan Kumar Bajaj Madhav Nair

Ravindra Marathe Zarin Daruwala

Consolidation of PSBs 22
Dina Bandhu Mohapatra P V Ananthakrishnan
Will It Serve Any Purpose?
- Dr Tapas Kumar Parida
Sunil Mehta Chintamani Nadkarni

K P Kharat Vinod G Dadlani

R Subramaniakumar Umesh Chand Asawa

4 The Indian Banker Vol VI No. 1 - August 2018

 Contents
NEWSROOM 8

ARTICLE
Vigilance Function of Whistleblower 27
- Dibakar Lenka

ARTICLE
Revisiting Consortium Financing 32
- Rajendra Singh

ARTICLE
Will ‘Sashakt’ Prove its Name? 36
- Sanjay Gupta

LEGAL
How ‘Secured’ are Secured Creditors? 42
- K S Hareesh Kumar

ARTICLE
P2P Lending 48
- N Gopala Krishna Murthy

ARTICLE
Inspection of Securities 52
An Important Tool of Risk Mitigation
- B M Saini

Book Review 57

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Vol VI No. 1 - August 2018 The Indian Banker 5

 EDITORIAL COMMITTEE

Aravind Kumar Pandey Dr Rajib K Sahoo Sibi P M

Deputy General Manager Deputy General Manager Deputy General Manager
State Bank of India Canara Bank South Indian Bank

Pradeep Kumar Bhool Jayasree Menon Sharad Kumar

Deputy General Manager Senior Vice President Assistant General Manager
State Bank of India Indian Banks’ Association State Bank of India

Manish Kumar Shailesh Kumar Malviya Ambikanand Jha

Assistant General Manager Assistant General Manager Assistant General Manager
Indian Bank Bank of India UCO Bank

Uday Diwakar Dr Rashmi Tripathi Dr Sulabha Kore Hari Misra

Assistant General Manager AGM- Economist Chief Manager (OL) Managing Director
Bank of Baroda Syndicate Bank Union Bank of India Finsight Media

6 The Indian Banker Vol VI No. 1 - August 2018

 DASHBOARD

Dashboard
1. Banking and Money: All Scheduled Commercial Banks (INR Billion)
Outstanding on % Variation Over
June 22, June 23, Last Last End March
2018 2017 Month Year 16.03.2018
Aggregate Deposits 113535.3 106056.2 -0.38 7.05 1.73
1. Demand 11767.5 11245.9 -0.13 4.64 -0.65
2. Time 101767.8 94810.2 -0.41 7.34 2.01
Bank Credit 86164.0 76640.0 0.61 12.43 2.85
1. Food 625.4 583.4 18.20 7.20 48.30
2. Non-food 85538.7 76056.6 0.50 12.47 2.62
Cash in Hand 707.2 727.2 4.60 -2.75 17.05
Balance with RBI 4851.3 4295.1 3.03 12.95 6.29
Investments 33965.6 32334.2 0.41 5.05 1.46
Money Supply 22.06.2018 23.06.2017
M3 (a+b+c+d) 140038.3 128094.5 -0.17 9.32 2.34
a. Currency with Public 18768.2 14499.4 1.26 29.44 7.07
b. Dem.Dep.with Banks 12902.7 12376.8 -0.10 4.25 --0.51
c. Time Dep. with Banks 108142.2 101016.5 -0.39 7.05 1.90
d. Other Dep. with RBI 225.2 201.8 -16.16 11.60 7.34

2. Price % Variation Over

2018 2017 Month Year
WPI:2011-12=100 (June 2018) 119.2 112.7 1.10 5.77
CPI:(2012=100) (June 2018) 138.6 132.1 0.58 4.92

3. Deployment of Gross Bank Credit by Major Sectors (` billion)

27.05.2016 26.05.2017 25.05.2018 Y-o-Y [2016-17] Y-o-Y [2017-18]
Gross Bank Credit 66603 68848 76365 3.4 10.9
Non-food Credit 65565 68243 75838 4.1 11.1
Agriculture & 8992 9657 10279 7.4 6.4
Allied Activities
Industry 26633 26068 26446 -2.1 1.5
Services 15713 16345 19932 4.0 21.9
Personal Loans 14227 16173 19181 13.7 18.6
4. Forex Reserves As on As on
(Including Gold . SDR) 29.06.2018 30.06.2017
` Billion 27808.5 25018.5
US$ Million 406058.4 386539.4

5. Bank Rate Percent Effective

1. Bank Rate 6.50 06.06.2018
2. MCLR (Overnight) 7.80/8.05 29.06.2018

6. Term Deposit Rate > 1 year Percent

Jun-08 Jun-15 Jun-22 Jun-29
6.25/7.00 6.25/7.00 6.25/7.00 6.25/7.00

7. Exports, Imports & Trade Balance (` Million) Source : World Bank

Apr-18 May-18 Jun-18 % Apr-May % May-Jun
Trade Balance -916387.5 -991660.2 -1125516.3 8.21 13.50
Exports 1683101.2 1943740.3 1878002 15.49 -3.38
Imports 2599488.7 2935400.5 3003518.3 12.92 2.32

8. Ratios Percent
1. CRR 4.00 w.e.f.09.02.2013
2. SLR 19.50 w.e.f. 14/10/2017
3. Repo Rate 6.25 w.e.f.06/06/2018
4. Reverse Repo Rate 6.00 w.e.f. 06/06/2018
5. Marginal Standing Facility (MSF) Rate 6.50 w.e.f. 06/06/2018
6. Cash Dep. Ratio 4.90 as on 22.06.2018
7. Investment Dep. Ratio 29.92 as on 22.06.2018
8. Credit Dep.Ratio 75.89 as on 22.06.2018

9. Index of Industrial Production - Sectoral [Base : 2011-12=100] 2017-18

Mining Manufacturing Electricity General
Growth Apr-May 1.6 2.8 6.9 3.1
Growth over corresponding period of the previous year (May) 0.3 2.6 8.3 2.9

10. Capital Markets (INR Billion)

Mar-18 Apr-18 May-18 Jun-18
Capital Issue 1925.9 301.1 271.4 474.8
Public Issue 162.1 44.1 27.1 154.2
Rights Issue 169.7 1.5 - -
Private Placements 1594.2 255.6 244.4 320.5
Call Money rates (Weighted Average) as on 29.06.2018 - 6.17%
11. Prime Lending Rates as on 28.06.2018 % p.a.
US CANADA ECB JAPAN SWISS BRITAIN HONG KONG
5.00 3.45 0.00 1.475 0.50 1.50 5.00
(As lending practices vary widely by location, these rates are not comparable)
Sources: 1,2,4,5,6,8 - RBI Weekly Supplement. 3 - RBI 7,10 - CMIE 9-MOSPI 11-Different Central Banks

Vol VI No. 1 - August 2018 The Indian Banker 7

 NEWSROOM
Newsroom
IMF warns parts of eurozone
banking system remain
‘vulnerable’
The International Monetary Fund
(IMF) has warned that parts of the
eurozone’s banking system are still
vulnerable despite the region’s
economic recovery, and called for
changes to the regime that oversees
lenders to prevent another financial
crisis. The euro area has reformed the
way it regulates its financial system
through the creation of a banking
union, established after the crisis
showed the repercussions across the
19-member bloc of weaknesses in
individual EU countries. In its first
review of the single currency area’s
financial system since the banking
union partly came into force in 2014,
the fund observed that too much
power still lay with national authorities
and supervision by EU bodies needed
to be more aggressive. The EU set up
the Single Supervisory Mechanism
(SSM), a banking watchdog, in the
European Central Bank, and a separate
Single Resolution Mechanism to handle
the winding down of failing lenders in
2014 in a move to restore trust
between member states. The fund said
that while the authorities had
‘transformed’ and ‘strengthened’
8 The Indian Banker
oversight of the region’s banks, the
SSM should have more responsibility
for marshalling its own resources,
rather than relying on national central
banks and supervisors to supply its
staff. It added that differences in rules
between member states remained an
obstacle and better regulation of risks
stemming from liquidity shortages and
bouts of volatility in financial markets
was needed. While banks have
managed to raise capital to cushion the
impact of shocks, the system is
weighed down by bad loans and weak
profits. Growth in the region would
solve these problems for some banks,
but the fund suggested that for other
lenders the problems were more
structural and their business models no
longer viable. Some of the eurozone’s
banking systems, notably Italy’s, remain
weak thanks to high levels of non-
performing loans (NPAs). Throughout
the region, banks’ profits have been
weaker than before the financial crisis.
The fund described debt burdens in
some member states as ‘heavy’ and
there were signs of overvaluation in
property markets in some parts of the
region. The IMF called for power to
grant emergency loans for troubled
lenders to be wrested from national
central banks and given to the ECB. It
also urged the SSM and national
authorities to improve co-operation
over anti-money laundering after
European officials came under fire
over US Treasury allegations that
ABLV, one of Latvia’s largest lenders,
was facilitating the funding of North
Korea’s missile programme.
Future of World Trade
Organisation (WTO) 
The headquarters of the WTO once
belonged to the League of Nations.
This organisation is now crippled by
American isolationism. President
Donald Trump has circumvented the
WTO to impose tariffs on steel and
aluminium imports, including those
from America’s allies. Complaining of
unfair treatment, the administration is
blocking nominations to seats on the
WTO’s appellate body, which could
leave it unable to hear cases after 2019.
Most ominously, America is embroiled
in a trade war with China. Both sides
have imposed tariffs on goods worth
tens of billions of dollars and are
threatening worse. The WTO was
supposed to contain trade disputes and
prevent retaliatory pile-ups. Today it
appears to be a horrified bystander as
the system it oversees crumbles. Free-
traders are right to be deeply worried,
but not yet right to despair. For the
outlines of a plan to save the system
are discernible. The developments
which would help in reviving the WTO
can be confined to two things. The
first is that the president is not the only
person forging American trade policy.
The European Union and Japan have
been talking to Robert Lighthizer, his
low-profile chief trade negotiator,
about WTO reform. Trump’s tirades
make headlines, but Lighthizer wants
to remake the WTO, not abandon it
entirely. He could use the president’s
threats as leverage to make deals. The
second thing to understand is that the
focus of much of America’s ire, China,
arouses deep suspicion elsewhere, too.
Since joining the WTO in 2001, China
Vol VI No. 1 - August 2018

has not turned towards markets, as the
West expected. Instead, it has distorted
trade on a scale that is far bigger than
the dumping and other causes of
disputes between market economies
that the WTO was designed to handle.
The EU and Japan share America’s
desire to constrain Chinese
mercantilism. China’s state-owned
firms and its vast and opaque subsidies
have distorted markets and caused
gluts in supply for commodities such
as steel. Foreign firms operating in
China struggle against heavy-handed
regulation, and are required to hand
over their intellectual property as a
condition of market access. But
holding China to account is hard with
the existing rule book. The reforms
being talked about by the EU, Japan
and America could plug many of the
gaps. They would set out how to judge
the scale of government distortions to
the market, make it easier to gather
information on wrongdoing and set
the boundaries for proportionate
retaliation. They would also define
what exactly counts as an arm of the
government, and broaden the scope of
banned subsidies. And they would
lower the burden of proof for
complainants, which, given the opacity
of the Chinese system, is too high.
Even the sunniest optimist will be able
to identify the obstacles to this plan.
Most obviously, why would China ever
accept a reform that jeopardises its
state-run economic model? Put plainly,
because America could wreak havoc
otherwise. It is in China’s interests to
preserve the global trading order
because, if China is isolated, the
Communist Party cannot achieve the
prosperity that cements its legitimacy.
The benefits to China of its WTO
membership have come not from
lower tariffs in America — they were
already low — but from the certainty
of stable trading relationships. Its
‘Made in China 2025’ plan to boost
vital industries sounds threatening, but
if China were obliged to produce
everything at home, its time frame
Vol VI No. 1 - August 2018
would be delayed by decades. Sure
enough, China and the EU agreed on
July 16th to co-operate on WTO
reform. Reaching a global agreement
that covered every one of the WTO’s
164 members would also be extremely
difficult. The last big round of global
trade talks stalled over demands by
developing economies such as India
for more leeway to protect farmers.
New negotiations may be held hostage
to these old disputes. Luckily,
negotiators can skip around them if
necessary, by securing a ‘plurilateral’
agreement between a group of big
economies. The WTO would still
enforce the terms, though they would
not apply to its other members. Last
comes the greatest block to a grand
bargain, Trump himself. The president
is a fierce critic of the WTO and a
believer that bilateral deals suit
American interests better. This week he
called the EU a ‘foe’ on trade. Trump
is hard to predict. He may yet abandon
the WTO. If he does, other powers
will probably go on building links and
writing rules — witness the trade deal
that the EU and Japan signed this
week. But if Lighthizer is able to
present Trump with an agreement that
the president likes, the world trading
system may yet be saved. It might even
be improved.
Theresa May rules out second
Brexit referendum
Downing Street has ruled out a second
referendum on Brexit in an answer to
those pushing for Britain to remain in
the European Union. The comments
came on just hours after former
cabinet minister Justine Greening
described Prime Minister Theresa
May’s current strategy as ‘the worst of
all worlds’ and demanded a second EU
referendum. The intervention by
Greening, former education secretary,
is expected to be followed by other
Europhile Tory MPs — including
Amber Rudd, former home secretary,
and Dominic Grieve, former attorney-
NEWSROOM
general. The idea of a second
referendum — or a ‘people’s vote’ —
has so far been promoted mainly by
opposition MPs and is viewed by
Eurosceptics as a device to overturn
the original referendum. The Labour
opposition has not backed the idea but
has refused to rule out the ‘possibility’
of backing it.
One cheer for the Brexit white
paper
The Brexit white paper published last
week faced several tests, and it failed
most of them. But there were two
important tests that it did pass, and its
publication indicates how the UK will
go about leaving the EU. The first
failed test was that it will not satisfy
many political and media supporters of
Brexit. The paper that came from the
deal agreed at the recent Chequers
summit indicated a dreaded ‘Brexit in
name only’, where the UK may, as a
matter of technical law, be outside the
EU after March 29, 2019 but, in terms
of substantial policy and law, it will
continue to be a ‘rule taker’. The
second failure was that it was not a
proposal for which there is an obvious
majority in the House of Commons.
The Tory hard Brexiters look as if they
will oppose it, as does the opposition
Labour party. Perhaps there is no
particular Brexit policy that would gain
overall support in the current
parliament, so this was a test that could
not have been passed with any ease.
The third test it failed was that of
economic realism. The UK is a service-
based economy but this white paper
concentrates on goods. One reason for
this is that goods can seem to be, in
general, simpler to deal with in policy
terms, if one looks mainly at tariffs.
Also, only addressing the goods
question means there is less chance of
there being a need for any physical
infrastructure on the Irish border. The
interests of the services sectors are to
be subordinate to the economically less
The Indian Banker 9
 NEWSROOM
important goods sectors. In particular,
the City of London and the financial
sectors may as well resign themselves
to Brexit being disruptive and not
frictionless. The fourth, and most
important, test was that of being a
package of proposals capable of being
accepted by the EU. The paper was a
selection of cherries being offered with
the aspiration for cake. No one
concerned with the preparation of this
document could seriously have
believed that these could be accepted
by the EU by return. The UK wants
free movement of goods and capital,
but not of services and people.
There are two things to be said for the
white paper — the two tests that it did
pass. The first is that it shows the UK
government is at last engaging with
reality. Of course, such thinking should
have been done before the Article 50
notification was sent. Through the
arrogance and folly of the current
government, 15 months of a two-year
negotiation period have been wasted.
And it may well be too late; there
remains a serious risk of there not
being an exit agreement in place, let
alone a basis for a new relationship.
But it is still July 2018 and an exit deal
needs to be in place by March 2019,
though all concerned need to have an
agreed draft by this October so there
can be a smooth ratification period.
There is enough time for an
agreement. The second thing in its
favour is that it provided a basis on the
Irish border issue so the UK can sign
the withdrawal agreement. Here it is
crucial to realise that there is little in
the white paper on the economic
relationship that needs to be agreed
before March, because the transition
arrangements provide that the status
quo will continue until at least
December 2020. The main economic
issue that must be addressed urgently is
whether the UK can agree to the so-
called backstop. The key practical
question is whether this document
contains enough for this issue to be
10 The Indian Banker
resolved. The backstop is the package
of arrangements the EU wants the UK
to guarantee will be in place so there is
not a hard border in Ireland if the two
parties fail to reach agreement on their
future relationship.
The UK government is uncomfortable
about what is proposed, as it seems it
will require Northern Ireland to stay in
the single market and customs union.
But the EU is insisting on it being in
the withdrawal agreement. So unless
the UK can shift the EU’s position on
this — which is unlikely — Britain
needs to find a way of accepting it.
The UK must have a withdrawal
agreement in place before it leaves the
EU, not least as it needs the transition
arrangements. A careful reading of the
white paper suggests that Britain has
devised a way round the problem, so it
can sign a withdrawal agreement
containing a backstop requirement.
This may be almost enough to keep
the negotiations on the exit agreement
on track over the summer. If Britain
can make out that it can agree to the
backstop on the grounds that it will
never need to be used because of the
contentions in these nine bullet points,
then the country has probably done
enough to get a withdrawal agreement
in place.
RBI to conduct Joint Audit of
rating agencies with SEBI
(Securities and Exchange Board
of India)
Credit rating agencies will come under
closer regulatory watch amid
corporates battling bankruptcies,
lenders taking hefty haircuts, and banks
trying to prune sticky loans. The
Reserve Bank of India (RBI) will
conduct regular audit and inspection of
rating agencies whose actions can
significantly influence the borrowing
price of all companies — including
insolvent businesses looking for a
second life. Till now, such audits were
only carried out by SEBI, which has
been monitoring rating agencies since
1999. Recently communicating its
decision to hold joint audit /
inspection with SEBI, the central bank
has asked agencies to avoid sharp
downgrades that rattle investors, and
exercise caution when corporates look
around to shop for a better rating.
RBI’s decision follows the mandate
given to rating agencies to rate debt
instruments based on the resolution
plan prepared with the consent of
lenders and bankruptcy court for
reviving a company. Under the existing
system, all rating agencies have to be
registered with SEBI, while the
banking regulator gives rating agencies
the accreditation to carry out ratings
on loans (of INR 10 core and above),
money market instruments like
commercial papers, and non-fund-
based banking facilities such as letters
of credit, the accreditation is given
based on rating information shared by
agencies on a specific format. Loan
ratings are significant for banks, as
higher risk weightage attached to
unrated loans impair their capital
adequacy level — which is the ratio
between a bank’s capital (comprising
equity, free reserves, Tier-2 bonds) and
its risk-weighted assets. RBI’s
interaction with rating agencies began
since 2007, when the Basel capital
norms for banks were implemented.
About 25,000 companies are rated in
the country, of which, half are
estimated to be below ‘investment
grade’. While financial markets
immediately come to know of defaults
in bonds and debentures due to
information-sharing mechanism in the
market for debt instruments
(particularly listed securities), rating
agencies get whiff of loan default long
after the due date for payment. Neither
banks nor RBI have till now agreed to
give rating agencies the access to the
data on default. Generally, agencies
take feedback from banks to get a
sense of the loan servicing record of
corporates. But generally, they do not
get complete information.
Vol VI No. 1 - August 2018
 NEWSROOM
RBI gives in-principle nod to LIC
for acquiring majority stake in
IDBI Bank
The Cabinet nod is required because
the government's stake will be diluted
below 51 percent in IDBI Bank. The
RBI has given an in-principle nod to
Life Insurance Corporation (LIC) for
acquiring a majority stake in IDBI
Bank. The government-owned
insurance behemoth had sought the
banking regulator’s nod before it had
approached the Insurance Regulatory
and Development Authority (IRDAI)
for seeking regulatory approvals. After
the Union Cabinet approves the
proposal, the RBI will examine if LIC
meets the ‘fit and proper criteria’ for
being a promoter with a controlling
stake in IDBI Bank. The Cabinet nod
is required because the government’s
stake will be diluted below 51 percent
in IDBI Bank. The government owned
85.96 percent and LIC 7.98 percent in
IDBI Bank at the end of June.
While giving its nod, IRDAI had given
LIC an exemption to holding more
than 15 percent in an entity. IRDAI’s
rules prevent any insurer from owning
beyond 15 percent in a listed financial
firm. The insurance regulator has,
however, asked LIC to bring down its
stake in IDBI Bank over a period of
five-seven years. IDBI Bank will likely
become a subsidiary of LIC on the
lines of LIC Housing Finance, LIC
Mutual Fund and LIC Pension Fund.
IDBI Bank will seek nod from its
shareholders and SEBI. The bank will
have to issue a postal ballot notice and
hold a separate general meeting of its
stakeholders on this matter. LIC is
expected to pump INR 100 - 130
billion into IDBI Bank through a
preferential allotment of new equity
shares at a price determined by a
formula under SEBI’s rules. The deal
will likely to trigger an open offer,
which LIC will make to IDBI Bank’s
shareholders. According to SEBI
guidelines, an acquisition of more than
12 The Indian Banker
25 percent in a listed entity is termed
control and requires an open offer.
The acquiring company must make an
offer to existing shareholders to buy an
additional stake in the company.
The state of state government
finances
Even though state governments
collectively spend much more than the
Union government every year, state
budgets do not attract the attention
they deserve. Some financial market
analysts keep an eye on state budgets,
but it remains largely an academic
exercise since bond market investors
neither reward nor punish states
depending on their fiscal situations.
However, at the aggregate level, the
state of state government finances has
wider implications. It is in this context
that the annual study of state
government finances by the RBI
becomes important. The latest edition
published by RBI shows that states
missed the fiscal deficit target of 3
percent of gross domestic product
(GDP) for the third year in a row. The
fiscal deficit of states is estimated to be
at 3.1 percent of GDP in 2017-18.
This higher fiscal deficit at the state
level in recent years has moderated the
benefit of fiscal consolidation by the
Central government.
Higher borrowing, either by the union
or state governments, puts pressure on
available financial resources and
increases interest rates. India’s general
government deficit is one of the
highest among its peers. To be sure,
after the implementation of the fiscal
responsibility and budget management
rules in the last decade, state
governments improved their finances
significantly. While the deterioration in
2015-16 and 2016-17 was largely due
to the takeover of debt of power
distribution companies under the Ujwal
Discom Assurance Yojana (Uday)
scheme, government finances in the
last fiscal were affected by factors such
as a shortfall in revenue,
implementation of pay commission
recommendations and farm loan
waivers. Some of these factors will
continue to affect state government
finances in the current year as well. As
states aim to consolidate their finances
by reducing the fiscal deficit to 2.6
percent of GDP in the current year, at
least three broad issues are worth
highlighting. First, fiscal slippage in
recent years has also led to
deterioration in the quality of
expenditure, with a rise in revenue
expenditure. What this means is that
higher fiscal deficits have not
augmented state capacity, which can
push growth.
One reason for higher expenditure in
the last fiscal, for instance, was a sharp
rise in salaries. States employ more
people than the Central government.
Further, as per the revised estimates
for 2017-18, debt waivers dented state
governments’ budget to the extent of
0.32 percent of GDP. Put differently, if
states had resisted populist farm loan
waivers, their finances would have been
in much better shape. Loan waivers are
unlikely to benefit states in the long
run. Studies have shown that while
they reduce household debt, loan
waivers do not help increase
investment or productivity. On the
contrary, formal financial institutions
are reluctant to lend after loan waivers.
This could make access to formal
credit more difficult for some farmers.
Expenditure on loan waivers also
affects the ability of the state to
undertake capital expenditure which
can affect growth in the medium term.
More announcements of debt waivers
in the run-up to crucial assembly
elections later this year and the Lok
Sabha election next year could further
reduce fiscal space for state
governments. Second, since state
governments are increasingly raising
resources from the bond market,
higher issuance can complicate fiscal
management. The share of market
Vol VI No. 1 - August 2018
 NEWSROOM

borrowing in the financing of fiscal Table 1

deficit is expected to top 90 percent in
the current year, compared with about
61 percent in 2015-16. The maturity
profile of state government bonds
shows that redemption pressure has
started increasing since the last fiscal.
Also, large bond issuances by state
governments have resulted in a rise in
the spread over Central government
securities. Continued higher borrowing
by states could further raise the cost of
borrowing and affect their ability to
undertake development work. Third,
the proportion of state deficits in the
general government deficit has gone
up in recent years.

The RBI notes that in 2016-17, the

general government sector pre-empted
68 percent of financial resources in the
form of gross domestic households’
financial savings at about 9 percent of
GDP. This has macroeconomic
implications, as it is perhaps crowding
out the private sector. Large general
government borrowing keeps interest
rates elevated and affects private
investment. This is one reason why,
despite the currency risk, large
businesses tend to borrow from
international markets. A sharp
movement in currencies can always
make debt servicing more difficult and
also increase complexity in
macroeconomic management.

Even though government finances
should improve with the stabilisation
of the goods and services tax, India
needs better fiscal management at both
the state and central levels to avoid
crowding out the private sector. This
will enable higher investment and help
attain higher sustainable growth.
Government hikes MSP of all
Kharif Crops  The next step will be a mechanism to
Central Government has increased
the Minimum Support Price (MSP)
for Kharif crops up to 1.5 times as
promised in the Union Budget
2018-19. The recalibration of kharif
MSP is part of the government
measures to ensure better price
realisation for farmers. Indeed, the
sharp deceleration in agriculture GDP
deflator reflects the poor price
realisation for farmers, with an average
growth of 0.8 percent in FY18 vs 5.4
percent in FY17.
ensure that farmers receive adequate
price for their produce, on which NITI
Aayog will be closely working with
centre and state governments. India is
estimated to have harvested a record
foodgrains production at 279.51
million tonnes in the 2017-18 crop
year (July-June) on all-time high output
of rice, wheat, coarse cereals and
pulses. The announcement of higher
MSP coupled with forecast of
normal monsoon this year could
further boost foodgrains output.
However, the higher support price
could also fuel food inflation. Table 1
captures the revised MSP of the major
Kharif crops.
Jayasree Menon, Senior Vice President
Department of Research & Statistics
Indian Banks’ Association

Vol VI No. 1 - August 2018 The Indian Banker 13

 Liquidity Risk Management
Structural Issues, Behavioural Biases and Managerial Myopia
Dr Ashish Srivastava 

The likelihood of not getting the desired found to be shrouded in failure to recognise

funding at an appropriate cost or the such risks and also in attempts to derecognise

probability of an undue loss of value in the such risks on account of certain behavioural

event of a fire sale of assets is recognised as biases such as overconfidence, linear

the liquidity risk. Moreover, a flat idiosyncratic extrapolation, confirmation bias, and

liquidity risk does not necessarily translate groupthink. Effective liquidity risk

into a similar risk neutral position at the management therefore, requires not only a

systemic level. Hence, adoption of perfectly clear understanding of the tenets of finance

rational liquidity management policies at the but also needs conscious efforts for mitigation

institutional level may not necessarily protect of the behavioural biases and managerial

a financial institution from the ill-effects of myopia. This article presents an overview of

systemic liquidity imbalances. To compound liquidity risk management in the context of the

the imbroglio, perceptions and approaches urban cooperative banks with special focus on

towards any impending liquidity risk are often the behavioural dimensions of risk.

14 The Indian Banker Vol VI No. 1 - August 2018


I. Introduction
Banks in the process of financial intermediation perform
critical functions of maturity and liquidity transformation
which result in risk aggregation and significant leverage.
Amongst several material risks in banking, the liquidity risk
though mostly subtle and understated remains critical even
for well-capitalised banks, a lesson the last global financial
crisis has categorically demonstrated. Given the special and
vital role played by the banks in the financial system, they
need to travel an extra mile for assessing, managing, and
mitigating risks.
Banks operate on the foundation of public confidence and
any breach in that confidence could lead severely impact its
operations, and even the very existence of a bank facing a
liquidity crisis might be endangered. Even large banks
when faced with a liquidity crisis and resulting turmoil
would find it difficult to manage their funding requirements
leading to an eventual failure due to liquidity bottlenecks.
Urban Cooperative Banks (UCBs) being cooperative
societies licensed to operate as banks, with certain
territorial restrictions, by the Reserve Bank of India, face
additional challenges due to the nature and structure of
their organisational design and business model.
II. Liquidity and liquidity risk
Liquidity is generally understood as the ready availability
of cash or cash equivalent assets for discharging liabilities.
It is also the ability of a bank to fund an increase in assets
and meet payment obligations as and when they become
due, without incurring uncalled-for losses. Liquidity risk
could arise from either the asset or liability side of a
bank’s balance sheet and could surface in several forms
with or without dissemination to the public at large.
Liquidity risk assumes varying dimensions at the micro and
macro levels and hence requires a full spectrum of policy
prescriptions and interventions both by the market
participants and regulators.
Micro exposition
At the institutional level, when seen from the asset side, the
liquidity risk is the degree to which a bank / financial
market participant cannot obtain the desired amount of
funding or trade a position without excess cost, risk or
inconvenience. This leads to varying degree of price
uncertainties, which get reflected in the fluctuating or
expanding bid-ask spreads. Since, liquidity is a function of
depth and breadth of the market as reflected in factors
such as a number of participants in the market, the
frequency and size of trades, the time it takes to carry out a
trade, the cost, and the risk of the transaction not being
completed1. It also depends on the nature of assets and the
Vol VI No. 1 - August 2018
COVER STORY
degree to which the assets are standardised. Less
standardised financial products run a higher degree of
liquidity risk due to non-availability of markets in a
potentially distressed situation. Though UCBs usually do
not deal in exotic and complex asset categories, their
investments in government securities could also face the
risk of non-availability of a ready market for a number
of such securities. Further, the interest rate movements,
at times, lead to a sharp fall in the valuations of securities.
Further, credit risk in the loan portfolio might lead to
liquidity crunch if a bank is not being able to affect
timely recoveries.
From the liability side, heavy dependence on bulk deposits,
especially from a thin base of customers, heavy reliance on
purchased funds, improper management of cash-flows, use
of short-term deposits to fund long-term assets and
inefficient handling of maturity mismatches, could ignite a
subtle but significant liquidity crisis. Risk of depositors’ run
is the worst form of liquidity risk from the liability side of
the balance sheet.
Macro exposition
Moving forward from the institution-specific micro factors,
at the systemic level, liquidity risk could be understood in
the following interconnected forms2 --
• Frictional liquidity risk occurs due to the interaction
between the transient factors, such as periodic tax
collections, volatile government receipts, large one-time
receipts / payments or inflationary spirals.
• Structural liquidity risk is caused by the widening
difference between the credit pick-up and the deposit
growth in the banking system coupled with the
movement in the currency in circulation.
• Funding liquidity risk is the risk that the counterparties
who provide the short-term funding might withdraw or
not roll-over the funding.
• Market liquidity risk is the risk of a generalised
disruption in asset markets thereby making otherwise
liquid assets illiquid.
Frictional and structural liquidity risks are manifested in the
form of funding liquidity risk and also the market liquidity
risk. Both of these could precede and succeed each other
depending upon the prevailing macroeconomic scenario.
Interactions of the above four risk parameters define and
shape the liquidity risk at the systemic level. Inter-linkages
between macro-level liquidity deficits and micro level
liquidity risk are to be correctly understood. The liquidity
assessment exercise involves continuous estimation of
The Indian Banker 15
 COVER STORY
liquidity on the basis of information contained in rates and
volumes in the money market as also forecasted changes in
currency in circulation and of government balances.
On the other hand, banks and financial institutions need to
estimate their liquidity and maturity mismatches to estimate
potential liquidity deficits. It is also important to closely
monitor the position of micro and macro liquidity factors
and keep a watch on the behavioural dimensions. The
behavioural dimensions play an important role in such
assessments and at times lead to a distorted or myopic
understanding of the impending risks.
III. Behavioural dimensions of liquidity risk
One of the fundamental problems of risk management is
that notwithstanding the knowledge and technical skill
possessed by the risk managers, they are often influenced
by certain behavioural biases and accordingly, their
decisions tend to move away from being the best course of
action. Further, many times, the top management suffers
from perverse incentives and myopic vision and looks for
gains in the short term at the cost of the strategic vision of
the organisation. Liquidity risk being a subtle disposition
tends to be overlooked by the overconfident managers.
Several studies3 have demonstrated that people
overestimate their ability to influence events that, in fact,
are mostly determined by external factors generally beyond
their control. Managers tend to be overconfident about the
accuracy of their forecasts and risk assessments about the
range of outcomes that may occur and accordingly
understate the incidence of risk.
Moreover, normally people anchor their estimates to readily
available information to make linear extrapolations from
recent history to a highly uncertain and volatile future. This
Figure 1: Risk factors in the order of significance
16 The Indian Banker
leads to erroneous and unrealistic results in the majority of
situations. This is compounded with a problem of
confirmation bias, which drives people to favour
information that supports their positions and suppress
information that counters them.
Behavioural biases also inhibit people’s ability to discuss
risk and failure. In particular, management teams facing
uncertain conditions often engage in groupthink, ie, once a
course of action has gathered support within a group,
dissenting voices tend to suppress their objections.
Groupthink is more likely if the team is led by an
overpowering manager who wants to minimise conflict,
delays, and challenges to his or her authority.
In order to understand the behavioural dimensions of the
liquidity risk in the context of the UCBs, a survey was
conducted using a structured questionnaire in which 120
respondents from different geographic locations
participated. A majority of the respondents were the
people manning the asset-liability and investment functions
in UCBs. Though the sample was not very large, it was
statistically significant and provided a sense of perceptions
and behavioural issues involved in the liquidity
management process.
Using the survey results, it was observed that the liquidity
risk received a fifth place in the ranking of significant risk
factors in the opinion of banks’ executives (Figure 1). It is
also noteworthy that systemic risk and settlement risk both
having implications for liquidity risk were rated even below
the liquidity risk.
One of the reasons for a lower significance assigned to the
liquidity risk possibly lies in the fact that a majority of
bankers never had an experience of a liquidity crisis
(Figure 2). The survey shows that about 87 percent of
Vol VI No. 1 - August 2018

Figure 2: Experience of liquidity risk
respondents had never witnessed a liquidity crisis, only 10
percent of the respondents despite having a sufficiently
long work experience had witnessed only temporary
liquidity crunch hovering around for a week, and only 3
percent of them had seen it for a fortnight. No respondent
had ever witnessed a longer period of liquidity crunch
facing their bank.
Since most of the bankers seldom see a full-blown liquidity
crisis, they tend to make judgments based on their
perceptions and try to scale down a possibility of a liquidity
crunch comes knocking at their doorsteps. The analysis
shown in Figure 2 states that the incidence of liquidity risk
was understated due to the existence of overconfidence,
confirmation bias, and linear extrapolation of experience to
predict future outcomes.
Collectively, these behavioural patterns explain as to why
banks overlook or misread ambiguous liquidity risk. Rather
than mitigating risk, banks at times incubate liquidity risk
through the normalisation of variance, as they manage to
get over minor liquidity volatilities due to continuous roll-
over of deposits or market liquidity support and therefore,
tend to treat early warning signals as false positives rather
Figure 3: Significance of liquidity risk factors
Vol VI No. 1 - August 2018
COVER STORY
than real indicators of
imminent turbulence.
IV. Liquidity risk –
Going concern or
gone concern
As with any managerial
problem, half of the
battle in risk
management is won if
the risk is well
understood and
accepted by the
decision makers and
stakeholders. However,
a fundamental problem
in liquidity risk management emerges from the lack of
proper assessment of the impending nature of crisis until
its actual unfolding.
This is particularly more challenging in banks as they keep
on getting fresh deposits that help them in retiring
maturing liabilities. As such, public at large and even many
branch level officials might not even know about any
persisting liquidity problem till their bank can borrow from
Peter to pay Paul. This is precisely the reason for the
successful running of various Ponzi schemes despite large
maturity mismatches and lack of contingency funding. In
case of a going concern, therefore, liquidity risk might not
be appreciated either by the managers or the stakeholders
as they believe that their operations could run till perpetuity
just by successful circulation of funds. However, an
optimistic perception about liquidity in a going concern
might get murkier with a sense of funding difficulties and
might turn into an issue of solvency in a gone concern,
when fear about impending closure of a financial
institution grapples the market.
It is important, therefore that the nature, impact and
incidence of liquidity risk in UCBs is well understood
The Indian Banker 17
 COVER STORY
through its incipient indicators and necessary steps are
taken to manage, contain and mitigate its ill effects. While
the institutions tend to have a myopic ‘going concern view’,
the regulator needs to have a broader perspective including
both going concern as also the gone concern scenario
while analysing risks, especially the liquidity risk. Based on
the survey results, Figure 3 shows that the bankers rate the
yield curve movement, ie interest rate volatility far riskier
than the depositor’s run. However, a risk rating of 4.4 and
3.7 respectively for the interest rate movement and
depositors’ run on a 10 point scale shows that even these
risks were not deemed critical by the bankers. This
indicates that a majority of bankers were influenced by
going-concern myopia and didn’t believe that liquidity risk
poses any serious challenge for their respective banks.
V. Liquidity planning and management
Once the liquidity risk is adequately measured, a long-term
liquidity plan assists in prioritising the liquidity needs before
liquidity issues arise. A forward-looking liquidity plan also
reduces the amount of capital and provisions required to
cover unexpected and expected losses, respectively. A
liquidity plan comprises of four components. These involve
appropriate information sharing with the regulator as also
with the public and being aware of the historical patterns
as also the possible flight of deposits in case of liquidity
stresses and being ready with emergency funding
arrangements to meet such eventuality. Also, keeping an eye
on the market and adhering to certain caps on internal
borrowings are also important steps for an efficient
liquidity planning. All these four components when
properly implemented help an institution to manage an
incipient liquidity crunch.
Based on the survey results, it was observed that a majority
of the UCBs depended on the banking system for the
Figure 4: Preference for short-term funding sources
18 The Indian Banker
purpose of liquidity management. While overdraft against
term deposits was observed as the most significant short-
term funding source, it also came out that in the event of
short-term surpluses, UCBs preferred to place funds with
the banking system, and liquid mutual funds. Participation
in call money and treasury bills were comparatively less
favoured (Figure 4, 5).
While liquidity planning is an integral part of the entire
gamut of measurement and management of liquidity,
regulations also play an important role in directing and
shaping the behaviour of individual market participants.
VI. Regulatory framework for liquidity
management
Regulation of liquidity risk has been a concern for the
policymakers for more than 20 years. The first Basel
Committee on Banking Supervision (BCBS) document on
sound practices in liquidity risk management was issued in
the year 19924 and was then superseded during the year
2000 by the guiding principles for liquidity risk
management5. As the global financial crisis of the year
2008 unfolded the vulnerability of the global financial
system to the liquidity risk, in the year 2008, the BCBS
issued an updated document6, albeit without any binding
requirements.
In December 2010, BCBS unveiled new liquidity rules in a
document called ‘Basel III: International framework for
liquidity risk measurement, standards and monitoring’7.
This introduced two key minimum reporting standards for
liquidity: a 30-day liquidity coverage ratio (LCR) and a
longer-term structural ratio called the net stable funding
ratio (NSFR). The LCR, from a net cash flow perspective,
is oriented towards boosting the bank’s short-term liquidity
pool and to hold minimum liquidity to survive 30 days of
Vol VI No. 1 - August 2018

Figure 5: Preferences for short-term funds deployment
stress. The NSFR, on the other hand, is designed to
mitigate maturity mismatch and is intended to serve as an
incipient indicator for regulators to intervene when
structural liquidity is insufficient. The new liquidity risk
ratios represent international and globally harmonised
liquidity measurement standards. The BCBS has also
published ‘Basel III: The Liquidity Coverage Ratio and
Liquidity Risk Monitoring Tools’ in January 20138.
Further, the ‘Liquidity Coverage Ratio Disclosure
Standards’ had been published by the BCBS in January
20149. In India, the LCR has been implemented in a
phased manner starting with a minimum requirement of 60
percent from January 1, 2015, and reaching the 100 percent
level on January 1, 201910. Similarly, NFSR guidelines have
been issued by the RBI for implementation from a date yet
to be announced11.
While these guidelines are not applicable to UCBs in India,
at present, these could certainly serve guiding principles in
the liquidity risk management. As per the extant regulatory
guidelines applicable to UCBs, the Tier I12 non-scheduled
UCBs are advised to prepare a statement of structural
liquidity as on the last reporting Friday of every quarter13.
Tier II non-scheduled UCBs (all other non-scheduled
UCBs which are not Tier-I) are required to prepare a
statement of structural liquidity, and statement of interest
rate sensitivity as on the last reporting Friday of each
quarter14.
However, scheduled UCBs are required to prepare the
statement of structural liquidity, and statement of short-
term dynamic liquidity on a fortnightly basis, and statement
of interest rate sensitivity on a monthly basis. The
statement of structural liquidity is more granular for them
with the first time-bucket of 1-14 days divided into three
buckets, viz next day, 2-7 days and 8-14 days15. As a
measure of liquidity management, UCBs are required to
monitor their cumulative mismatches across all time-
buckets in the statement of structural liquidity by setting
internal prudential limits with the approval of the Board.
Vol VI No. 1 - August 2018
COVER STORY
As per the guidelines, the mismatches (negative gap)
during the time buckets of 1-14 days and 15-28 days in the
normal course should not exceed 20 percent of the cash
outflows in the respective time buckets. For scheduled
UCBs, the net cumulative negative mismatches during the
next day, 2-7 days and 8-14 days and 15-28 days buckets
should not exceed 5 percent, 10 percent, 15 percent and 20
percent of the cumulative cash outflows in the respective
time buckets in order to recognise the cumulative impact
on liquidity16.
These statements prepared with data integrity and precise
estimation of the contractual / behavioural maturities helps
in the timely estimation of the liquidity mismatches and
needed funding for not only an effective liquidity risk
management but also the overall asset liability management.
VII. Structural bottlenecks in liquidity risk
management for UCBs
It is a well-accepted fact that banks run an inherent
liquidity risk due to maturity mismatches between their
assets and liabilities and a high degree of leverage.
However, besides the inherent liquidity risk in banking,
UCBs face additional challenges in the sphere of liquidity
risk due to the peculiar nature of their operations and
certain structural issues, discussed as under:
• Lack of liquidity support
Many UCBs remain dependent on the District Central
Cooperative Banks / State Cooperative Banks for liquidity
support or manage with overdrafts against their term
deposits kept with commercial banks for meeting their
day to day liquidity needs. Only selected scheduled UCBs
to have access to the Liquidity Adjustment Facility (LAF)
of RBI17. Further, there is no umbrella organisation
for UCBs which could work as a lender of last resort
and provide support to them for meeting unforeseen
liquidity requirements.
The Indian Banker 19
 COVER STORY
• Inability to directly participate in call money market
A majority of UCBs do not fulfil the access criteria18 for
centralised payment system including eligibility for opening
a Current Account with RBI, Subsidiary General Ledger
(SGL) / Intra Day Liquidity SGL (IDL-SGL) account,
Negotiated Dealing System-Order Matching (NDS-OM),
and NDS Call membership. Hence, such banks do not have
direct access to the call money market through NDS, which
limits their ability to manage their day to day liquidity
position actively. At best, they can participate in the market
through some other banks under the sub-membership
route in a comparatively less efficient manner.
• Volatile nature of share capital
Another significant structural issue is about the quality and
nature of share capital in UCBs. Normally, share capital is
considered as a permanent and stable source of funds for
banks and accordingly is considered in over five-year
bucket in the Structural Liquidity Statement (SLS).
However, unlike the perpetual nature of share capital in
commercial banks, the share capital of UCBs is linked to
their loans and advances and as such, it varies with the level
of bank’s lending. An increase in the quantum of lending
increases the capital while final repayment of loans might
20 The Indian Banker
lead to the withdrawal of share capital. In a nutshell, for
UCBs instead of being a permanent and stable source of
liquidity, the share capital itself is a source of liquidity risk
as it is required to be refunded to members once their
respective loans are repaid, albeit subject to restrictions
placed in their byelaws. In their day to day operations, most
of the UCBs as also their members do not treat the share
capital much differently than a non-interest bearing deposit.
It has been observed in certain instances that even negative
net worth UCBs do not hesitate to refund share capital to
the peril of depositors.
Most of the UCBs tend to manage their liquidity positions
by obtaining overdrafts against their fixed deposits
maintained with other banks and as such, become
dependent on that bank’s ability to meet their needs as and
when that arises. Owing to the small size of operations of
most of the UCBs this might not look problematic.
However, UCBs need to gradually move to a more
diversified, stable and market-oriented mechanism for
efficient and effective liquidity management.
VIII. Conclusion
Ability to honour payment obligations in time is the
foundation of public confidence on which banks operate,
Vol VI No. 1 - August 2018

and any crisis of confidence could negatively impact their
operations, and even the very existence of a bank facing a
liquidity crisis might be endangered. For UCBs, which face
additional challenges due to various structural and
behavioural factors, as discussed above, it is of utmost
importance that the nature, impact and incidence of
liquidity risk is well understood through its incipient
indicators, and necessary steps are taken to measure,
manage, contain and mitigate its negative effects through a
well-diversified liquidity plan.
It is also important not to have the illusion of a going
concern which would always be in a position to rotate its
money till perpetuity, as an optimistic perception about
liquidity in a going concern might vanish overnight with a
sense of funding difficulties and turn into an issue of
solvency in a gone concern. Further, the behavioural
issues, managerial myopia, and going-concern illusion
impact not only the UCBs but also all the banks alike.
Efforts for handling behavioural biases, eliminating
myopic choices and minimising structural bottlenecks in
liquidity risk management helps banks to operate efficiently
and effectively.
References
Srivastava, Dr Ashish; Liquidity at Risk – Measurement, Management &
1
Regulation, The Indian Banker, IBA, June 2012, p.p. 20-23
2Srivastava, Dr Ashish, Systemic Liquidity Risk-A Macroeconomic Evaluation, IUP
India, March 2018
Kaplan, R. S., Anette, M., Managing Risks: A New Framework, Harvard Business
3 He holds a PhD in Working Capital
Review, June 2012
4http://www.bis.org/publ/bcbs10b.pdf
5http://www.bis.org/publ/bcbs69.pdf
6http://www.bis.org/publ/bcbs144.pdf
7http://www.bis.org/publ/bcbs188.pdf
8https://www.bis.org/publ/bcbs238.htm
9https://www.bis.org/publ/bcbs272.htm
10 RBI Circular, DBOD.BP.BC.No.120/21.04.098/2013-14 dated June 09, 2014
11 RBI Circular, DBR.BP.BC.No.106/21.04.098/2017-18 dated May 17, 2018
12Tier I UCBs are categorized as banks having deposits below INR 100 crore operating
in a single district as also the banks with deposits below INR 100 crore operating in
more than one district will be treated as Tier I provided the branches are in contiguous
districts and deposits and advances of branches in one district separately constitute at
Vol VI No. 1 - August 2018
COVER STORY
least 95 percent of the total deposits and advances respectively of the bank and banks
with deposits below INR 100 crore, whose branches were originally in a single district
but subsequently, became multi-district due to reorganization of the district. Deposits and
advances as referred to in the above definition are reckoned as on 31st March of the
immediate preceding financial year. All other UCBs are called Tier II UCBs. (Master
Circular- Exposure Norms and Statutory / Other Restrictions – UCBs - UBD.BPD.
(PCB) MC No.1/13.05.000/2014-15 dated July 01, 2014).
Liquidity Risk Management System in Tier I UCBs- Guidelines; UBD. PCB. Cir.
13
No12/12.05.001/2008-09 dated September 17, 2008
14Guidelines on Asset- Liability Management (ALM) System in Tier II UCBs (other
than scheduled UCBs); UBD. PCB. Cir. No 13 /12.05.001/2008-09 dated
September 17, 2008
Guidelines on Asset-Liability Management (ALM) System – Amendments -
15
Scheduled UCBs, UBD. PCB. Cir. No 3 /12.05.001/2008-09 dated September 17,
2008
RBI Circulars, ibid, dated September 17, 2008
16
RBI Circular UBD.BPD.(SCB).Cir.No.1/16.27.000/2014-15 dated October 29,
17
2014.
18RBI Master Direction DPSS.CO.OD.No.1846/04.04.009/2016-17 dated
January 17, 2017
About the Author
Dr Ashish Srivastava is an AGM and a
Member of Faculty at the College of
Agricultural Banking, RBI, Pune.
Management and MBA with specialisation
in Finance. He has obtained the degree of
Master of Finance from the Judge Business
School, University of Cambridge, UK and has also qualified the
eligibility test for university lectureship in India. His
qualifications include CAIIB, CTRM of IIBF. He also possesses
the FRM certification along with the International Certificate in
Banking Risk and Regulation (ICBRR) of GARP, USA and
accredited with the Bloomberg Market Concepts Certification.
He has twenty years’ experience in banking and finance and
has taught postgraduate courses in business management,
besides having an extensive experience in the area of banking
supervision. His research interests include banking regulation,
systemic risk and financial innovations and he has published
more than 50 papers in the leading journals and magazines.
His areas of specialization include statutory inspections, risk
management, credit management, investment management,
capital adequacy, regulatory compliance, macroeconomic
issues, etc.
He could be reached at ashishsrivastava@rbi.org.in
The Indian Banker 21
 ARTICLE
I. Backdrop
India had a fairly well developed commercial banking
system in existence at the time of independence in 1947.
The Reserve Bank of India (RBI) was established in 1935.
While RBI became a State-owned institution from January
1, 1949, the Banking Regulation Act was enacted in 1949
providing a framework for regulation and supervision of
commercial banking activity. The first step towards the
nationalisation of commercial banks was the result of a
report (under the aegis of RBI) by the Committee of
Direction of All India Rural Credit Survey (1951). The
Committee recommended one strong integrated state-
partnered commercial banking institution to stimulate
banking development in general and rural credit in
particular. Thus, the Imperial Bank of India was taken over
by the government and renamed as the State Bank of India
(SBI) on July 1, 1955, with RBI acquiring a substantial
overriding holding of shares. A number of erstwhile banks
owned by princely states were made subsidiaries of SBI
in 1959.
Thus, the beginning of the Plan era also saw the
emergence of public ownership of one of the most
prominent of the commercial banks. There was a feeling
that though the Indian banking system had made
considerable progress in the ‘50s’ and ‘60s’, it established
close links between commercial and industry houses,
resulting in cornering of bank credit by these segments to
the exclusion of agriculture and small industries.
To meet these concerns, in 1969 Government of India had
nationalised 14 major scheduled commercial banks which
had deposits above a cut-off size. The objective was to
serve better the needs of development of the economy in
conformity with national priorities and objectives. In a
22 The Indian Banker
Consolidation of PSBs
Will It Serve Any Purpose?
Dr Tapas Kumar Parida 
somewhat repeat of the same experience, 11 years after
nationalisation, the government announced the
nationalisation of 6 more scheduled commercial banks
above the cut-off size.
Further, in 1991 the government has adopted liberalisation
policies to suit the requirements of a liberalised economy.
The banking sector reform became inevitable to accelerate
the pace of reforms to usher in a vibrant and competitive
economy. An expert Committee under the Chairmanship of
M Narasimham was set up for spearheading the financial
sector reforms in India. The Narasimham Committee
(Committee on Financial Sector Reforms 1991) inter alia,
recommended opening up of the banking sector to the
private entrepreneurs to bring in competition and efficiency,
thereby paving the way for licensing of new commercial
banks in the private sector. Consequently, RBI has licensed
ten banks in the private sector in 1993-94, and two more in
2003-04 under the guidelines framed in 1993 and 2001
respectively. Again, in 2014, two more banks, ten small
finance banks (SFBs) and 11 Payment Banks allowed with
the aim of promoting financial inclusion. Further, the
Nachiket Mor committee recommended that it is not just
more banks but banks with a differentiated licence are need
of the hour.
During the reform period, greater competition has been
infused in the banking system by permitting entry of
private sector banks, and liberal licensing of more branches
by foreign banks and the entry of new foreign banks. With
the development of a multi-institutional structure in the
financial sector, the emphasis is on efficiency through
competition irrespective of ownership. Since non-bank
intermediation has increased, banks have had to improve
efficiency to ensure survival. The reforms also accorded
greater flexibility to the banking system to manage both the
Vol VI No. 1 - August 2018

pricing and quantity of resources. There has been a
reduction in statutory pre-emptions, and RBI also moved
away from micro-regulation to macro-management.
To strengthen the banking system to cope up with the
changing environment, prudential standards have been
imposed in a progressive manner. While banks have greater
freedom to take credit decisions, prudential norms setting
out capital adequacy norms, asset classification, income
recognition and provisioning rules, exposure norms, and
asset liability management systems have helped to identify
and contain risks, thereby contributing to greater financial
stability. Development of the government securities, money
and forex markets have improved the transmission
mechanism of monetary policy, facilitated the development
of a yield curve and enabled greater integration of markets.
The interest rate channel of monetary policy transmission
has greater importance as compared to the credit channel.
However, at present, the transmission of monetary policy
rate has become a challenge for RBI. With this backdrop,
in the following, we will discuss the much-discussed recent
issues and concerns under which the Indian banking is
reeling now.
II. Present issues in the Indian banking
Banks are the lifeline of an economy, as they play a catalyst
role in achieving sustained economic growth, especially, in
developing countries and India is no exception. So, it very
important that banks in any country need to remain
financially healthy. Otherwise, the crisis may hit the country
leading to recession like situation as in the US during 2008.
With the economic slowdown, the Indian banking sector is
passing through a critical phase and struggled with several
challenges / issues in operations. Some of the major
concerns are:
(i) deteriorating asset quality;
(ii) lower credit growth;
(iii) capital constraints to adhere Basel 3 norms;
(iv) stress on profitability;
(v) low Return on Assets (RoA);
(vi) increasing frauds;
(vii) implementation of IFRS (Ind AS);
(viii) meeting the mandated priority sector lending (PSL)
targets; and
Vol VI No. 1 - August 2018
ARTICLE
(ix) risk-return trade-off which is ‘maximising return for a
given risk’ and ‘minimising risk for a given return’, etc.
To revive the credit growth, in the last 2-years government
has taken a number of steps like mudra loans, expansion of
PSL baskets to new emerging sectors, amendment of RBI
Act, passing of Insolvency and Bankruptcy Code (IBC),
etc. With this, the banking sector’s credit growth has done a
turnaround in FY18 and grew by 10 percent, after
remaining depressed for nearly two years. Further, to meet
the regulatory requirements under Basel III and to support
credit growth for job creation, the government took a
massive step in recapitalising PSBs in a front-loaded
manner. This entails mobilisation of capital to the tune of
about INR 2.11 lac crore (US$ 32.5 billion), over FY18 and
FY19, through budgetary provisions of INR 18,139 crore
(US$2.79 billion), recapitalisation bonds to the tune of INR
1.35 lac crore (US$20.76 billion), and the balance INR
58,000 crore need to be raised by banks from the market.
In FY18, the government has notified INR 80,000 crore
(US$12 billion) recapitalisation bonds to capitalise 20 PSBs
for meeting their regulatory capital requirement and growth
needs. With the present stress in the banks, it may be
difficult for the banks to raise money from the market.
In the last 2-3 years, there has been a lot of apprehensions
among the bankers about the merger and acquisitions
(M&A) among the PSBs to create 3-4 big banks. The main
logic behind the consolidation is based on the assumption
that: (i) there are too many banks in India; (ii) if the
banking sector has to be assessed in the international
context, size is the most important factor. As per the global
ranking by ‘The Banker’ in July 2017, among the top 1000
global banks not a single bank from India placed in the top
50 global banks league. India’s top bank, State Bank of
India, has ranked at 54, followed by ICICI Bank is at 91.
In the top 10 banks list, Chinese and US banks
representation is by eight banks (four each), and the rest
two belong to the UK and Japan. So, it is true that India
should have a few big banks to meet the growing needs of
the economy, which will support the global trade of the
Indian corporates.
However, now the question arises, whether the
consolidation of PSBs will serve the desired objectives and
benefit all the stakeholders. So, before going into depth, we
need to look at the history of the past mergers happened
in the banking industry and across the world.
III. Consolidation in Indian banking
• A global perspective on bank mergers
Mergers and acquisitions (M&A) among financial
institutions are a worldwide phenomenon and the rapid
The Indian Banker 23
 ARTICLE
pace with which the industry underwent consolidation has
been compelling. The US leads with the largest number of
M&As in the world. Bank mergers drove the long-term
downward trend in the number of banks in the US since
1985. Even in the crisis periods of the late 1980s, early
1990s, and 2007-09, the number of mergers exceeded the
number of failures every year. About 90 percent of the
1,500 mergers since 2007 in the US involved a bank with
less than $1 billion in assets. In general, acquired banks
were often smaller, less profitable, less efficient, and in a
weaker condition than their non-acquired peers.
In Europe, the mergers and consolidations in banking were
significant during the decades of the 1990s and 2001 due
to the introduction of Euro. Over the two decades, the
European banking sector witnessed significant structural
changes that resulted in its consolidation and increased
cross-shareholdings. As a result, the number of credit
institutions in the EU-15 dropped from approximately
12,000 at the end of 1990 to just over 7,000 at the end of
2004, with the majority of M&As being domestic deals.
All through these years, the pace of mergers had never
been uniform across various advanced countries, and local
policy objectives guided the eventual outcome. For
instance, in Canada, domestic banks traditionally controlled
a large share of the banking sector. Owing to the
dominance of the banking industry by a few banks,
consolidation is regulated through a guideline established in
2000 to ensure that it does not lead to an unacceptable
level of concentration and a drastic reduction in
competition and reduced policy flexibility. Thus, not much
consolidation took place there during the 1990s, in contrast
to the experience in the US. Nevertheless, the 2007
Financial Crisis has dramatically slowed down the
consolidation rate in banking across the world, and new
proposals called for more rigorous research. Mergers
among banks between the years 2000 and 2010 were
usually large and characterised by high transaction values.
Mergers among the US banks had a combined transaction
value of more than US$375 billion, and the total value of
intra-European transactions exceeded US$330 billion.
Asia also witnessed a bank M&A wave during the same
period but due to a different set of reasons. In Japan, the
consolidation in banking occurred after the bubble burst in
1989. In 1998 the Japanese government responded to the
crisis by launching a comprehensive bank bailout plan
followed by a consolidation leading to the formation of
some of the largest banks in Asia like the Bank of Tokyo-
Mitsubishi. Following the East Asian crisis, banking in
many South East Asian countries came under severe stress.
This led to a variety of responses depending upon the local
conditions in consonance with IMF prescriptions. For
instance, in Thailand, foreign banks took control of two
24 The Indian Banker
domestic banks. The foreign ownership was most
noticeable in South Korea where foreign entities took 51
percent stake in Korea First Bank. By 2001, five out of
twelve large Korean Banks were foreign owned. Indonesia,
which was one of the worst affected by the crisis, however,
followed a different path for bank consolidation.
In consultation with the IMF, the Indonesian Government
formed the Indonesian Banking Restructuring Agency
(IBRA), as a confidence-building measure. Immediately
after its establishment, the IBRA introduced restructuring
measures such as successive takeovers of ill-performing
banks and gaining full control over banks by changing
management. On the other hand, it supplied liquidity to
prospective banks and promoted business restructuring in
healthy banks. The plan, although not perfect initially,
succeeded eventually in restoring the confidence in the
banking system. During the period 1997 to 2000, 19 banks
were consolidated, and four merged banks were formed. In
2004, IBRA was disbanded. Subsequently, with the
dissolution of the IBRA in February 2004, the Indonesian
banking sector came back to normal. At present, Indonesia
has one of the healthiest banking systems in Asia with the
highest equity to asset ratios amongst Asian banks and
manageable bad loan ratio of less than 4 percent.
• Bank mergers in India
Consolidation of banks through M&As is not a new
phenomenon for the Indian banking industry. In the pre-
Independence era, the first and big consolidation was the
formation of the Imperial Bank of India (renamed as State
Bank of India in 1955) in 1935 by merging three
presidency banks, namely Bank of Bengal, Bank of
Bombay and Bank of Madras. In the post-nationalisation
of 14 major banks in 1969, there have been 44 M&As
happened in the country. Of these mergers, 26 involved
mergers of private sector banks with public sector banks,
while 13 cases, mergers involved private sector banks and
the remaining five public sector banks merged with PSBs.
Out of 44, 21 M&As took place during the post-reform
period with as many as 22 mergers / amalgamations taking
place during 1999 and after.
Before 1999, the amalgamation of banks was primarily
triggered by the weak financials of the bank being merged,
whereas, in the post-1999 period, there have also been
mergers between healthy banks, driven by the business and
commercial considerations. With the 44 mergers, there is
no sign that there was a loss of competition in Indian
banking. In fact banking in India is still more competitive
than most of the advanced markets.
The latest and the biggest merger in the banking history is
the SBI has merged all the five Associate Banks and
Vol VI No. 1 - August 2018

Bharatiya Mahila Bank with itself from 1st April, 2017.
With this mega-merger, the number of PSBs is down to 21,
and the vision of Narasimham Committee 1991 stands
achieved, albeit 26 years after it was first envisaged.
• Do mergers create stakeholder value?
Now, the question is, whether mergers create value and
what is the relevance of bank mergers in India going
forward? This is not an easy question to answer because
the available empirical literature is rather inclusive of their
benefits and as far as Asia is considered the empirical
literature itself is sparse.
Bank merger and hence consolidation will occur in Asia,
but the drivers will be different from Europe. In the
present geopolitical context, the health of the banking
sector is invariably the most vital indicator of financial
stability and also currency stability. This is partly dictated by
the history of the banking crisis in this region. If the
banking sector is government owned its strength is an
expression of national power itself. As John Kenneth
Galbraith argued in his book ‘The Anatomy of Power’,
‘economics divorced from consideration of the exercise of power is
without meaning and certainly without relevance’.
The example of large government-owned Chinese banks
who have wielded enormous financial power across various
countries in Asia, Africa and Latin America thus shaping
China’s foreign policy becomes obvious from this angle.
But, will government ownership provide the banks with
resilience and flexibility? A state has the capacity to absorb
short-term losses in its quest for long-term strategic gains.
If this principle is exercised through state-dominated
banks, how far can we take this?
Globally, the fruits of a bank merger are both bitter and
sweet. For example, ABN AMRO Bank’s merger with
Royal Bank of Scotland (RBS) indicates that the solvency
position of RBS significantly improved after the merger,
which indicates that bank’s long-term paying capacity
improves after the merger. Thus, total debt to equity ratio,
interest coverage ratio, debt ratio and long-term debts to
equity ratio improved from 17.80 to 10.68, from -0.24 to
0.20, 0.94 to 0.91, and 14.36 to 7.55 respectively in the
post-merger period. While some of the profitability
indicators showed a decline but the gross profit margin has
improved from 2.33 percent to 3.86 percent in the post-
merger period. Singapore banks exhibited an increase in
average overall efficiency from 93.82 percent in the pre-
merger period (1998-2000) to 98.77 percent post-merger
(2002-2004).
India, the second largest economy in Asia and an aspirant
for superpower status, cannot escape this reality. Thus, the
Vol VI No. 1 - August 2018
ARTICLE
government has repeated many times that consolidation in
PSBs is imperative so that Indian banks are globally
competitive. It is also essential that domestic banking
undergo some consolidation before we have finalised our
Free Trade Agreements (FTAs) with ASEAN (Association
of Southeast Asian Nations) where banking consolidation
will occur, so that cost of fund advantage is preserved. The
reasoning goes equally for other possible FTAs and
multilateral agreements that India may sign in future.
In the Indian context, the success of bank mergers viewed
from a strategic angle is limited as there are many
stakeholders like government, QIPs, customers, employees
and RBI. The primary objective of the RBI and the
government in the process of consolidation is to ensure
that mergers are not detrimental to the public interest, bank
concerned, their depositors and shareholders, and also that
they do not impinge on financial stability. RBI ensures that
after a merger, acquisition, reconstruction or takeover, the
bank or banking group has the adequate financial strength
and the management has sufficient expertise and integrity.
From the shareholder`s point of view, which includes both
the government and institutional investors, mergers must
result in shareholder value creation. From a government
point of view, besides an augmented stream of dividends
which forms a part of its non-tax revenues, mergers must
deliver by reducing the future need of a capital infusion.
Mergers in PSBs must increase the role of internal and
market resources and reduce government dependence. The
efficiency of public resources deployed in PSBs must
increase. From an institutional investor point of view, the
available market float of banks’ share must appreciate after
the merger.
These considerations have at least guided the merger
decision of SBI and the associate banks, as the major
shareholder was SBI itself. After the merger, SBI has
moved to a RoE based budgeting along with risk-based
budgeting in managing its portfolio. Further, there was a
necessity to rationalise operations and to merge branches /
offices located in close proximity to strategic locations to
reap the benefits of the merger. With this objective, the
bulk merger of branches was scheduled on various dates,
and more than 1800 branches and around 250 admin
offices have been rationalised. This is expected to reduce
operating cost to the tune of INR 1,100 crore in a year.
Additionally, the duplication of resources such as
simultaneous investment resources in Basel compliance,
multiple treasuries has reduced. As a merged entity, SBI
now able to optimise deployment of its resources and
consolidated manpower. Coupled with technology
integration, these efficiencies will show up in the future
financial and overall business growth.
The Indian Banker 25
 ARTICLE
Further, the merger of two entities throws up complex
issues of human resource management, employee
integration and above all psychological and perception
management. This is true for all types of mergers, but in
the case of banks which are manpower intensive, loss of
morale after mergers is of serious concern. To add to this,
there are costs of integration on the employee front. As far
as SBI is concerned, HR Integration cost was only in
respect of VRS. The additional provident fund provision
for employees of associate banks shall be well within INR
25 crore. This was insignificant given the size of the bank.
However, this may not be a case in general for all the
future mergers in PSBs.
The impact of the merger on the customers of the entity
getting merged in all its dimensions is not a well-researched
area. In the case of bank mergers, it is expected that the
merged entity may pass on to the customers the efficiency
gains. It is also expected that economies of scale will
favourably affect the pricing of its products.
In case of SBI merger with associate banks, these factors
have been favourably placed. After the merger, the costs of
funds for the merged entity have only marginally increased
by ten bps. It is expected that there will be no adverse
impact on the pricing of credit portfolio as the pooling of
funds under the common treasury and the rationalisation
of branches all over the country which will bring down the
operational cost will compensate for the ten bps rise in the
cost of funds. From the technology point of view, SBI was
much ahead in this area as compared to its erstwhile
associate banks. Hence, erstwhile associate bank 70+
million customers will have the advantage of access to
better technologies after the merger.
IV. Conclusion
Though consolidation of PSBs has several issues like HR
issues, technology and platform differences; in most of the
cases, mergers have a number of long-term benefits, both
to the merged banks and to the economy. The increased
balance sheet size will enable the bank to obtain better
pricing on both internationally sourced funds and domestic
deposits, thus helping it lower lending rates and improve
profitability. The added branch network and customer base
will also help it to expand and enable the bank to
rationalise resources across the board. Bank’s increased
size, in terms of assets, will also give it the requisite muscle
to take on new competition from larger banking entities
that are likely to be created by consolidation in the
banking industry.
However, it is important that the exercise of PSBs
consolidation should be based on a sound analysis of every
PSB, a granular analysis of its assets and liabilities, sector-
26 The Indian Banker
wise loan exposures, security back-up, common loans
among PSBs, etc. Finally, we may not ignore the role of
small and niche banks, as they have played an important
role in last mile connectivity and grass root innovation.
Further, there are several discussions on the privatisation of
PSBs. I don’t think there is any need to privatise PSBs, by
looking at the governance in the private sector banks. We
believe PSBs are stronger and well-governed banks, who
are fulfilling the nation-building agenda.
For example, PSBs have helped the government in
implementing the policy initiatives say Jan Dhan, Mudra
and Ujwala etc. Out of the 31.4 crore accounts as on 4th
April, 2018; PSBs have opened 25.4 crore accounts, RRBs
have opened 5.1 crore accounts, whereas private sector
banks have opened only 0.9 crore accounts.
Apart from this, any big infrastructure projects say metro
rail, power plant, airports and ports etc are financed by the
PSBs. The social initiatives undertaken in the banking
system would suffer if many of the government-owned
banks were privatised. There is a huge socio-economic
agenda which only PSBs cater to.
Besides, when people talk about privatisation, the theory
they must keep in mind that it is government ownership
that is saving the day. Even if it were a private sector bank,
still the government would have to step in to save the bank
and everywhere in the world it has happened. People who
speak about privatisation are missing the point.
About the Author
Dr Tapas Kumar Parida is presently
working as an Economist at Economic
Research Department, Corporate Centre
of SBI.
Prior to joining SBI, he has worked with
Indian Bank, Axis Bank, Planning
Commission, Higher Education Dept of
Government of Odisha and XIMB.
He has done his MA, MPhil and PhD in Economics at University
of Hyderabad. He has qualified UGC-NET (JRF) in Economics
and also completed JAIIB and CAIIB from IIBF. He also holds a
Master Degree in ‘Finance and Control (MFC)’, which is at par
with MBA (Finance).
He has been a regular writer for a number of magazines and
blogs. His publications include 3 books and a number of
papers on banking and insurance topics. His areas of
specialisation are Banking and Insurance.
He can be reached at tapas.parida@sbi.co.in
Vol VI No. 1 - August 2018

Banks, which act as an intermediary between depositors
and lenders, are duty bound to observe the highest
standards of safeguards to ensure that money accepted
from depositors is not misutilised and is put to productive
use or is available with them to be paid on demand. In
order to ensure this, banks are not only required to do due
diligence on the borrowers but are also expected to put in
place appropriate safeguards to ensure that the transactions
being undertaken by the staff are as per laid down
guidelines. The watchfulness enforced by the vigilance
function is required to ensure that public money, which
banks hold in a fiduciary capacity, is not allowed to be
misused by the dishonest elements in any manner.
Meaning of vigilance
Pearl S Buck, an American writer and novelist had stated
that ‘When good people in any country cease their vigilance and
struggle, then evil men prevail’. This observation made years
back holds true even today. Hence, the need for awareness
about vigilance and its various aspects has become all the
more critical in modern public life. The dictionary defines
vigilance as being watchful and wary to detect danger;
being ever awake and alert. While being vigilant is
important in all walks of life, the observance of vigilance
becomes more critical in the financial sector.
Vigilance function in banks
Public sector banks fall under the jurisdiction of Central
Vigilance Commission (CVC) on account of their
incorporation and operation as public sector entities.
Further, RBI also issued guidelines in May 2011 advising all
the private sector banks to evolve suitable structure within
their organisation which would scrutinise all cases where
any foul play is suspected from vigilance angle.
Vol VI No. 1 - August 2018
ARTICLE
Vigilance Function of
Whistleblower
Dibakar Lenka
The guidelines on vigilance administration are issued by the
CVC. The Chief Vigilance Officers (CVOs) in the
respective organisations have been authorised to decide
upon the existence of a vigilance angle in individual cases at
the time of registration of the complaint. Generally, a
vigilance angle is perceptible in cases characterised by:
1. Commission of criminal offences like demand and
acceptance of illegal gratification, possession of
disproportionate assets, forgery, cheating, abuse of
official position with a view to obtaining pecuniary
benefits advantage for self or any other person;
2. Irregularities, reflecting adversely on the integrity of the
public servant;
3. Lapses involving gross or willful negligence,
recklessness, failure to report to competent authorities,
the exercise of discretion without or in excess of
powers, the cause of undue loss or an undue gain to an
individual or a set of individuals or parties and violation
of systems and procedures.
The vigilance function should not be seen as an
impediment in the decision-making process. It should be
viewed as an internal litmus test to identify the bonafide
decisions taken in the institution, irrespective of the fact
whether the decision taken has resulted in a loss to the
institution or not. The banks need to go into the merits of
each decision, so that bonafide and mala fide actions are
segregated and dealt with incisively.
Different aspects of vigilance administration
There are three aspects to the vigilance function –
Participative (surveillance and detection), Punitive
and Preventive.
The Indian Banker 27
 ARTICLE
1. Participative vigilance
Participative vigilance function encompasses reviewing the
existing systems and control, identifying lacunae and
putting in place sufficient red flags so that the scope for
misconduct is minimised and transgressions are detected
swiftly. Use of power and delegated authority need to be
reviewed, and proper checks and balances need to be put in
place to avoid misuse of powers by an individual employee
for their personal benefit.
When the precautions become part of the culture of the
organisation, they also act to improve the surveillance and
detection vigilance function in any organisation.
2. Punitive Vigilance
Punitive vigilance is the most important and most dreaded
part of the vigilance function in any organisation. The
management can use this function to instil a sense of
responsibility and accountability amongst its workforce.
To make this tool effective, the management should strive
to complete the investigation process promptly without any
bias and impose a penalty which is commensurate with the
gravity of the offence committed and the loss suffered by
the organisation.
3. Preventive vigilance
In normal course, banks should strengthen preventive
vigilance functions by inculcating a sense of honesty and
integrity among its employees and establishing internal
systems and controls, which would act as a defence against
mala fide activities. Preventive vigilance function is, perhaps
the most crucial and yet, the most challenging of the three
aspects of vigilance. It is crucial because it has the potential
to prevent lapses from occurring by stemming the rot at
the initial stages itself.
However, it is challenging because it needs to be a
continuous exercise across all levels of the organisation and
demands the focused attention of the management. This
involves keeping a close watch on the activity profile and
the lifestyle of the employees. The employees, who
maintain a flashy lifestyle without accounted for means to
support such lifestyle, who rarely take leave, who do not
share the finer points of work with fellow colleagues, who
take extra interest in the work assigned to others, who are
ever ready to help vendors dealing with the institution, who
are under debt etc, need to be closely watched from a
vigilance angle. To strengthen the preventive vigilance
function in any institution, the involvement of all
stakeholders irrespective of their standing in the institution
can play an important part.
28 The Indian Banker
Who is a Whistleblower?
In a general context, a ‘Whistleblower’ can be a person or a
group of persons, who are exposing the fraud, corruption,
willful wrongdoing or similar unethical acts those may be
non-permissible under the law. These whistleblowers can
be employees or former employees or vendors or affiliates
of any organisation etc. There are different types of
whistleblowers which are described as following –
a) Internal
The whistleblower, being an employee of the organisation,
reports the wrongful conduct or activities of an official or
a colluded effort by a group of people in an organisation.
b) External
When the issues pertaining to the wrong practices or willful
misdeeds are reported by people who are outside the
system – these people can be individuals or in the form of
organisations such as media, public interest groups or any
other such agency. Such whistleblowers are known as
external whistleblowers.
c) Alumni
When a whistleblower is a person who is no more an
employee of the organisation, but he is acting on the willful
wrongdoings he has witnessed during his employment with
the organisation. Such ex-employees can unearth such
deliberate mismanagements with the relevant authorities.
Organisation’s role for whistleblower 
Here the staff members are sensitised not to be silent
spectators to any wrongdoing in the branch / office but to
report the same to the higher authority. The same is
intended to ensure that a few unscrupulous staff members
are not vitiating the overall atmosphere / work culture and
putting the bank’s interest in jeopardy.
Whistleblower policy and legislative framework
in our country 
In the corporate world, the most important factor in
reliability is ‘Transparent Governance’. The ability of an
organisation to institute a transparent governance system,
which promotes the adoption of ethical business practices,
can provide a significant thrust to sustainable growth and
continued business for the longer term.
This can be achieved by establishing efficient management
systems and robust policies to detect and minimise acts of
frauds, corruption in the company.
Vol VI No. 1 - August 2018

The existence of such policies in the form of the legislative
Acts has been there even before the enactment of
Whistleblower Act. It was well recognised under Section
177(9) of Companies Act that all public listed companies
have to mandatorily establish a vigilant mechanism for
employees and senior executives. On top of that, it has
been made mandatory to establish a whistleblower policy
with clear and adequate safeguards against victimisation
of whistleblowers.
The effectiveness of a whistleblower policy depends solely
upon the intent with which an organisation firstly wants to
create it and secondly wants to implement it. Such policy
should not only give direction to complaints regarding any
violation but also should specifically convey the results, and
in the worst case, even the failure to report should also fall
into the violation of policy. Some of the key points to
understand the framework follow:
The policy must provide a mechanism and channel to
report violation on any level. Such channels should be
presided over by the chairman of the board. Entire
pyramid of hierarchy, right from an entry-level employee to
the director should be allowed to report any violations of
the policy. Discriminations, willful negligence of quality,
colluded frauds, and misappropriation of budgets are some
of the events those should get reported.
In the event of such reporting, the senior management
shall take up the investigation, and any false evidence shall
be dealt with seriously. Zero harassment should be assured
to the whistleblower by the management in the policy itself
and no retaliation in whatsoever form should be tolerated.
Full confidentiality shall be maintained at all the times to
safeguard the whistleblower. Such policy should have an
exception not to protect a whistleblower from disciplinary
action if allegations are proven unfounded and with willful,
malicious intent. In the context of a whistleblower in large
corporate settings, it is wise to understand it in the light of
Companies Act and the relevant regulators such as SEBI
and others.
a) The Companies Act and whistleblowing
In the hindsight of numerous scandals and syndicated
corruption through private and public sector companies
alike, it was obvious to have certain changes in the way
business world is governed through different Acts and
Statute of Law. One such important step was the
enactment of The Companies Act 2013, which has put
more thrust on eliminating loopholes through stricter
compliance and vigilance mechanism.
There are different sections of the Companies Act 2013,
which cover the complete framework of inquiry,
Vol VI No. 1 - August 2018
ARTICLE
investigation and inspection – all under one chapter of the
Act through sections 206 to 229. These provisions increase
the identification of corrupt practices by an external agent,
and thus the agent can play an important role to become an
external whistleblower. Section 208 of the Act empowers
an Inspector (other than registrar) to go through the
records and recommends a further investigation in such
matters of doubt; whereas Section 210 of the Act
empowers Central government to order an investigation; on
the receipt of such recommendations from registrar or
Inspector or in public interest or on intimation of a special
resolution passed by company to be investigated.
Along the same lines, Section 211 has led to the formation
of Special Fraud Investigation Office (SFIO) with the
power to arrest for offences specified as a fraud. In the
previous context, auditors were not legally empowered to
ascertain a fraud and they were just supposed to be
primarily reporting such misappropriation.
However, now it is their onus to act as whistleblowers and
directly report any such act to Central government or
concerned authorities.
b) Securities and Exchange Board of India (SEBI) and
whistleblowing
SEBI – The regulatory body for management of public
limited companies, following its mandate to strengthen
corporate governance standards in India, amended the
Principles of Corporate Governance by incorporating
clause 49 of the listing policy which mentions the
formation of Whistleblower Policy for companies.
However, it is not mandatory to put a policy in place,
although numerous companies have adopted it
wholeheartedly as it improves the compliance and
governance standards – on the other hand, it is mandatory
to disclose adaption of such policy and number of events
reported under such policy along with the number of cases
resolved or pending.
c) The Whistleblower Protection Act
As a bill passed by the Parliament in 2014 and consented
by the President in May, 2014 – Whistleblower Protection
Act, 2014 replaces the government resolution of 2014
which empowered Central Vigilance Commission to act on
complaints from whistleblowers.
In this Act under Section 3, any public servant or any other
person who may include any non-governmental
organisation may make a public interest disclosure to a
competent authority. Any such disclosure to the competent
authority shall be treated as public interest disclosure in the
The Indian Banker 29
 ARTICLE
context of this Act. The Act provides empowerment to
the competent authorities to give direction to the relevant
bodies / authorities for the protection of complainant
or witness. This Act has some exclusion to be reported if it
falls under any of the categories of national importance
such as national security issues, economic / scientific issues
of importancen and cabinet meetings / proceedings.
Any such public interest disclosure falling into the excluded
categories, when received by the competent authority shall
be forwarded to an authorised government office / body,
and the competent authority will be deciding on such
matter whereas that decision shall be binding.
On the other hand, this Act comes with few control
mechanisms on complainants, such as penalty of up to two
years imprisonment and a monetary fine of up to INR
20,000 for individuals found to be filing false complaints or
the ones with a willful vendetta. Along with this, the Act
provides a time limit of seven years to file a complaint
dating from the time of occurrence of such corruption or
willful act.
Penalty and offences under this Act
As stated under Section 15(a) of Whistleblowers Act, 2014
where any competent authority finds that the official
concerned is not furnishing the report within the specified
time or intentionally refuses to submit, then a penalty of
two hundred fifty rupees for each day is provided in the
provision till the report is furnished but the penalty shall
not exceed fifty thousand rupees. As stated under section
17, any person who makes any disclosure which is false or
misleading shall be punished with imprisonment of two
years or less and shall be charged with a fine of rupees
thirty thousand or less.
Whistleblower in banks
According to the Association of Certified Fraud Examiners
(ACFE), organisations with whistleblower hotlines
experience frauds that are 41 percent less costly and can
detect frauds 50 percent faster compared to organisations
that do not have such a channel. However, it is experienced
that banks tend to approach whistleblowing with a ‘tick in
the box’ mentality, often resulting in ineffective and poorly
managed whistleblower programmes.
The success of a whistleblowing programme lies in its
adoption by employees and third parties such as customers
and business partners. For Indian banks operating across
different geographies, it becomes paramount to invest in a
robust whistleblower programme that is not confined to
one language, limited operating hours and selectively
accessible to certain employees. Further, banks must
30 The Indian Banker
institutionalise training programmes to encourage
employees to blow the whistle when they see or hear
anything suspicious or seemingly unethical.
Whistleblower and bank fraud
The whistleblower in ICICI Bank-Videocon case calls for a
check on lending practices across banks. Roundtripping
with the connected company of top management is quite
common. The incidence of frauds and levels of NPAs in
the banking system have been on an upswing for quite
some time now. The adverse developments like rising
incidents of frauds and ballooning of NPAs in the banking
sector and similar adverse outcomes like mispricing of
national resources in other public sector entities and the
government departments has led to a situation, where
vigilance function has become extremely critical to ensure
good governance standards and probity in the
implementation of projects involving public money.
Figure 1
Source: India Banking Fraud Survey Edition II
The primary reason for such adverse outcomes is that a
large majority of such projects are mainly supported by
debt (whatever equity is brought in is mainly money raised
as debt or quasi-debt), and hence key stakeholders in the
project, ie borrowers, lenders and administrators have
virtually no downside risk from the failure of projects, but
substantial upside return. There is virtually no
accountability for the top decision-makers, and on most
occasions, it is only the public interest that is sacrificed. In
such an environment, vigilance administration in the public
sector undertakings becomes very critical and needs to be
carried out with extreme care and clarity.
Highlights of the Whistleblower Protection
(Amendment) Bill, 2015
There were some changes introduced by the Bill which can
be implemented in various working sectors. In the previous
Act, there was no procedure for inquiring into public
interest matters, but now the Bill proposes to inquire into
Vol VI No. 1 - August 2018
 ARTICLE

cases related to corruption, misuse of power or criminal
offences by public servants. But it prohibits any person to
report any corruptive act if it relates to economic growth
of the country such as if it promotes the GDP growth of
India, scientific interest related to discovery of a new
principle in which suppose if one country sells its invention
to another country and the tax and other miscellaneous
charges are higher than the actual rate, then this must be
overlooked as in corruption, if it is security of India such
as to protect the country from terrorist acts. It is to be
noted that this Bill as of now does not permit disclosure of
those acts which are prohibited under Official Secrets Act,
1923, although before the amendment this was allowed.
term and it should not be considered as a magic step which
will eliminate all wrongdoings in our routine life – rather in
longer term it may act as a supporting tool to employees,
professionals and organisations which have an intent to
maintain integrity and transparent governance free from all
possible corruption. The Act is useful and instrumental if
we collectively fight against corruption.
References
1. Indian banking fraud survey part II April 15.
2. Whistleblower- Wikipedia

Conclusion  About the Author
Whistleblower policy if implemented effectively can
become a big deterrent to people with malign intents. The
Whistleblower Act coupled with The Companies Act, 2013
makes up the deficit which Indian Legal system has been
facing. No one can deny that corrupt practices can only be
decreased and probably not eliminated completely.
The success or failure of The Whistleblower Act is not
much dependent upon the quantified outcomes in the short
Dibakar Lenka is presently working as
Chief Manager, Faculty, Staff Training
Centre, Union Bank of India,
Bhubaneshwar. He is having 28 years of
banking experience.
His educational qualifications include M Sc
(Agriculture Economics) and CAIIB.
He can be contacted at dibakarlenka1960@gmail.com

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Vol VI No. 1 - August 2018 The Indian Banker 31

 ARTICLE
Introduction
Where the financial needs of a borrowing company are
financed by a group of banks by forming a consortium, it
is known as consortium financing. All banks provide
finance against common security charged to them on the
pari-passu basis. It is a concept to promote the collective
application of banking resources.
Advantages for the banks
• A single bank carries a disproportionate credit risk
when it single-handedly finances a huge sum to a large
borrower. It helps to spread this risk among a number
of banks who are members of the consortium.
• Consortium financing leads to a better credit appraisal
in as the expertise of all the member banks is used for
appraising the proposal.
• Smaller banks that are not in a position to extend
finance of huge limits to large borrowers can join in
financing by becoming members of the consortium.
• Consortium financing stops the unhealthy practice of
taking over good large borrower accounts by one bank
from another by offering unwanted counter offers with
respect to interest and service charges.
Advantages for the borrowers
The borrowing firm / unit availing credit through a
consortium does not suffer from a scarcity of credit which
it would have otherwise suffered due to credit squeeze of
its sole banker. All its genuine needs can be met by the
consortium arrangement.
32 The Indian Banker
Revisiting
Consortium Financing
Rajendra Singh
Evolution of consortium financing
1. Lakshminarayan Committee: RBI appointed a committee in
1971 under the chairmanship of G Lakshminarayan to
study problems in consortium approach to lending and to
suggest some guidelines compelling banks to go in for
consortium lending. This committee suggested ground rules
to be followed by banks and accordingly the RBI, for the
first time, issued in 1974 guidelines on consortium finance
to be adhered to by banks. As these guidelines failed to
bring discipline to the banks, RBI issued fresh guidelines in
1987 which were mandatory in nature. But over the years,
there has been large deviation and lapses in consortium
advances leading to an increase in stressed assets.
2. Formation of consortium: In order to form a consortium, the
borrower should arrange for the banks who would like to
take exposure in the company and also the bank which will
act as the Leader Bank. These banks should formally meet
and pass a resolution for the formation of the consortium
and the guidelines which will apply to the consortium.
3. Once a consortium, always a consortium: According to the
finance ministry, if PSBs have collectively given a
company a project loan which later turns bad, they should
not break ranks and sell the loan in piecemeal to asset
reconstruction companies (ARCs). Instead, they should sell
the consortium loan, lock, stock and barrel to ARC or a
consortium of ARCs.
The finance ministry is of the view that collectively PSBs
can realise better pricing on the sale of a project loan given
in consortium rather than by doing so singly. A project loan
is given by lenders to finance new projects as well as for
expansion, diversification and modernisation of existing
ones in infrastructure and non-infrastructure sectors.
Vol VI No. 1 - August 2018

At a meeting of bankers, ministry officials suggested that
when it comes to consortium loans that have turned bad,
PSBs officials under the aegis of the joint lenders’ forum
(JLF) should act together to decide on the sale of such
loans to ARCs. Further, even if one bank in a consortium
wants to sell its portion of the loan, the JLF needs to
be convened.
Now, the question arises as to why some PSBs prefer to go
it alone for selling an asset that has been financed by a
consortium? Such a situation could be because it impacts
each consortium member in different ways. To cite an
example, for one bank, an INR 5000 crore loan exposure
may account for one percent of its loan book, while for
another bank it could be just 0.001 percent. So, the former
bank could think of its exposure a little differently in terms
of the overall impact and may want to sell its exposure
quickly to get cash and security receipts (SRs).
Another reason why some banks hesitate to sell their
consortium assets collectively could be that they may have
different security interests. According to an expert banker,
‘Their security packages may be different. Somebody may have
exclusive security. One cannot put that in a pool and get paid on an
average basis. One would prefer to sell that bilaterally. So, there could
be a variety of reasons why banks do not act together.’ Another
public sector banker said, the ministry's suggestion if
implemented faithfully could yield better price discovery
and higher realisation for consortium loan on the block.
Strengthening appraisal and monitoring under
consortium financing
1. Inadequate credit risk assessment: The reason why the overall
banking system underwrites and pumps more questionable
loans is simple, very poor underwriting standard coupled
with a lack of execution experience and poor governance
standards.
2. Outsourcing due-diligence: According to an EY report,
Lenders rely significantly on the inputs issued by such
parties. Reports are made as a routine with little scrutiny. In
some situations, the report may be drafted under the
influence of unscrupulous borrowers. It is therefore
important that the selection of such third parties is
independent, done transparently based on their capability
and credentials.
3. Common agreement: Barring the rate of interest, all the
terms / conditions set out in the consortium's contract are
common. A common loan agreement and joint deed of
hypothecation are used when a consortium of lenders
extends the loan. Most large borrowers prefer having
multiple banking relationships, whereby they have an
independent arrangement with each banker, the security
Vol VI No. 1 - August 2018
ARTICLE
offered to each banker is separate, and no formal
understanding exists between different lenders financing
the same borrower.
Under the multiple banking arrangement, terms /
conditions by each lender are different. This gives an
opportunity to each borrower to play for one bank against
another to extract the best deal. Under the consortium
guidelines that are in the offing, banks could seek a
personal guarantee from a borrower whose ratings are
below investment grade for loans above INR 500 crore.
To strengthen the consortium lending mechanism, the RBI
could make it compulsory for the leader bank to share with
other consortium members the monthly statement of cash
flow through the escrow account. This account is opened
by the leader bank for financing the borrower, ensuring
that proceeds of sale transactions are credited to this
account for loan repayments.
4. The regular meeting of leader bank and consortium members::
Consortium leader and member banks should meet on a
regular basis, and exchange vital information's so that
corrective measures may be taken immediately to keep the
asset quality intact.
5. Close monitoring of accounts: Having regard to the rise of
NPAs particularly consortium accounts, banks have to
strengthen their credit monitoring departments to ensure
that loans do not get into restructuring mode. This is
keeping in view the attendant provisioning consequences as
the RBI's revised framework for the resolution of stressed
assets does not book even a day's default.
Under the revised framework, which was unveiled on
February 12, 2018, banks are expected to pick up signs of
incipient stress even before they get classified as special
mention account (SMA)-0. SMA-0 accounts are those who
throw up early warning signals of stress and where the
principal or interest payment or any other account wholly
or partly is overdue between 1-30 days. Accounts are
classified as SMA-1 and SMA-2 where the principal or
interest payment or any other amount wholly or partly is
overdue between 31-60 days and 61-90 days respectively.
When interest and / or instalment of principal amount
remain overdue for a period of more than 90 days, a loan is
classified as NPA.
According to Union Bank of India MD and CEO Raj
Kumar Rai G, ‘In between the credit sanction and the recovery
department, the credit monitoring department follows up on all SMA
accounts. In the first phase, we are going to cover under monitoring all
accounts above INR 100 crore. The moment the loan sanction takes
place, the credit monitoring department will monitor for compliance
purpose whether all sanction conditions are fulfilled or not. After that,
The Indian Banker 33
 ARTICLE
it will monitor whether project assumptions relating to sale / turnover
are being achieved or not. Thus, the accounts will be tracked on a
monthly basis.’
According to a top executive of another public sector
bank, ‘Resolution plans including restructuring, under the revised
framework kick in from day one of loan default. So, we should be
able to identify an account even before it becomes SMA-0. We are
building a mechanism to recognise this.’
CEO of Union Bank of India observed that the RBI rules
are so strict now that unless banks build mechanism for
early identification of stress, it will be very difficult to lend
in the future. It is not that we did not monitor accounts
earlier, but it started from SMA-0 onwards. Now, much
before an account slips into the SMA-0 category, we should
be able to pick up signals of stress.
Diligence reports on consortium lending are in for
a makeover
Diligence reports mandated by the RBI in 2008 for
consortium lending by banks are in for a makeover. In an
effort to ensure that the current due diligence mechanism
is updated, stays relevant, and is in sync with contemporary
views and expectations. The Institute of Company
Secretaries of India (ICSI) had constituted a specialised
task force comprising eminent experts to thoroughly review
the mechanism and the accompanying format of diligence
report for banks. The report of the task force was released
by its Chairman B P Vijayendra, Principal Chief General
Manager (Retd.) RBI, in Mumbai recently.
A review of the diligence mechanism was warranted in the
wake of multifarious regulatory development in recent
years. The new Companies Act 2013 had several far-
reaching provisions that impacted the diligence mechanism
and the format of diligence report for banks. Although the
RBI had mandated diligence reports in 2008, banks have
been hesitant to adopt this concept.
In fact, banks’ observation of the RBI circular was more in
breach as they asked their borrower-customers, to obtain
the reports as against RBI mandating bank's themselves to
obtain reports from borrower-customers. In all, the story
so far has been that of weak implementation, thereby
debilitating the best of intentions.
However, with the matter getting flagged by the PM at
FICCI AGM, the issue of lack of diligence among banks in
their lending operations, the review of diligence mechanism
and the need to have a contemporaneous diligence report
has gained momentum. The review is now being pursued at
a critical time when PSBs are grappling through turmoil on
the NPA management front.
34 The Indian Banker
Consortium lending model losing sheen
Consortium lending model once touted as a better
alternative to extending large credit facilities seems to have
failed to achieve the desired effect that to the inability of
banks to share data with each other in a time-bound
manner. Consortium lending was considered a must for
big-ticket loans (typically above INR 500 crores) to stem
cases of fraud and help check the rise in bad loans in the
system. However, the inability of banks particularly PSBs
to share information about the bad account in a timely and
adequate manner has led to a rise in the number of frauds
involving consortium lending.
Banks work in isolation
According to Ashvin Parekh, Managing Partner, Ashvin
Parekh Advisory services, there are loopholes in process
control and credit monitoring at PSBs. ‘Banks, particularly at
PSBs, tend to work in isolation. When it comes to monitoring
accounts, they do not work with other banks in understanding
borrowing and repayment behaviour and identification NPAs.’
According to a senior banking analyst, ‘As per standard
procedures, once a bank reports a particular company’s account as
fraud to the RBI, the RBI, in turn, circulates the information
immediately to all banks calling for their attention. The fraud
database is made available by the RBI to every bank in the
consortium. It needs to be seen whether it was properly checked by
banks while lending to a large borrower. In a consortium, other
banks typically tend to go by the due diligence carried out by the
lead bank.’
RBI, in its Financial Stability Report (December 2017)
highlighted the conflict of interest among merchant
bankers to be one of the key reasons for faulty appraisals
leading to picking up of NPAs. RBI further observed, ‘A
significant part of such projects undertaken were
consortium lending where appraisals being carried out by
professional merchant banker with inbuilt conflict of
interest (since they were paid by the borrowers).’ According
to Ashvin Parekh, ‘unless banks pay attention to the borrowing
and repayment behaviour and work together in the consortium, it will
be very difficult to recognise manifestation of stress in an account.’
Streamlining consortium lending
Henceforth, PSBs will discourage multiple banking
arrangements for companies with exposure of more than
INR 2.5 billion in the banking system and will move such
loans to take consortium mode for better monitoring. The
department of financial services asked banks to submit a
report on how to strengthen risk management in the
aftermath of INR 129 billion LOUS (letter of undertaking)
scam at Punjab National bank.
Vol VI No. 1 - August 2018

According to M S Sastry, deputy managing director and
chief risk officer SBI, ‘In case of multiple banking arrangements,
there is no discipline. There will preferably be consortium lending for
loans above INR 2.5 billion.’ All chief technology officers,
chief risk officers and executive directors of PSBs
attended a three-day workshop from March 12th to 14th to
prepare a roadmap that banks can follow to strengthen
their risk mechanism systems. The banks will need approval
from their respective boards to implement the action plan
agreed upon. These include strengthening information
technology systems within 3-6 months. It was decided in
the workshop that existing accounts will also be brought
under consortium lending. Under multiple banking
arrangements, companies take loans from separate banks
with different credit limits. Though the credit limits remain
the same; a consortium will be formed for better control
and coordination.
Strengthening IT systems
PSBs further decided to strengthen their IT systems CBS
(Core Banking Solution) with SWIFT by April 30, 2018.
It may be worth mentioning here that two banks’ officers
at PNBs Brady House branch in Mumbai to bypass the
systems by issuing fraudulent letters of undertaking (LOU),
as the bank's CBS and SWIFT were not integrated.
According to M S Sastry, ‘Only three-four out of 21 PSBs have
fully integrated CBS with SWIFT at present.’ PSBs will also
deter from funding the interest during the gestation /
construction period. The RBI has allowed banks to fund
project cost-overruns without treating such loans as
restructured assets. Banks fund additional interest during
the gestation / construction period that may arise due to
delay in completion of a project.
Branch-level risk awareness
PSBs will organise branch-level risk awareness workshops
to create awareness among employees. The bank staff will
be encouraged to do whistleblowing in case they observe
any wrongdoing in the account. According to M S Sastry,
‘Staff awareness will go a long way in strengthening risk management
in banks.’
Monitoring staff behaviour
According to a bank executive, banks will strengthen their
‘Know Your Employees Systems’ by monitoring behaviour
through centralised information (IT) process. This will
work by taking feedbacks about staff on key roles from
banks' branch managers. Further, the banks will restrict
SWIFT transactions during business hours of the branch.
The reconciliation process of a bank's foreign branch
account known as ‘Nostro’ account will be done
Vol VI No. 1 - August 2018
ARTICLE
thoroughly. Further, each bank will establish Onsite Cyber
Security Operation Center (O-SOC) to monitor all the
IT systems. The banks will also bring all software
applications under the control of the corporate centre of
their IT Department to ensure that there is no misuse of
the system.
Prudential norms like higher provisioning are in the interest
of the banks. He urged lenders to put in place a
contingency plan when they lend to infrastructure projects
such as coal mining and gas-based plants. When pointed
out that PSBs face excess stress because they have to lend
to public enterprises, for Government companies, the
project appraisal has to be more stringent. There has been
a sea of red in the banking system. Almost every PSB has
been witnessing high NPAs leading to higher provisions
and thereby losses in their quarterly balance sheets.
Summary
The scale of losses that banks have been disclosing
warrants a closure look at what has gone wrong? To be fair
corporates bear responsibility for over-assessing demand
during a boom year, diversion of funds and siphoning off
funds without disclosing to the financing banks. However,
banks have to take responsibility for not being diligent
enough. The quality of credit appraisal, consortium
members depending on leader bank's appraisal, lack of
coordination, cooperation and collaboration among the
member banks, failure in subsequent monitoring and
periodic assessment of emerging risks on their part has
been responsible for such sorry state of affairs. In the
ultimate analysis, PSBs should review and tighten their
lending practices even while ensuring that they do not err
too much on the side of caution which will end up
smothering the incipient growth in the economy.
About the Author
Rajendra Singh retired as a Chief Manager
after 32 years of service in Indian Overseas
Bank.
Singh holds the degree of BASc (Honours)
in Agriculture and Animal Husbandry from
Pantnagar Agri University. He did his MSc
(Agriculture) also from the same University.
He has won 12 awards from various banks and financial
institutions for his articles. He has published more than 240
articles in various magazines both in Hindi and English. He is a
guest faculty for various institutes. He has interests in
teaching, writing and training.
He can be reached at rajendrasingh47@hotmail.com
The Indian Banker 35
 ARTICLE
Banking community had been waiting with bated breath for
the new weapon to fight the war on NPAs and stressed
assets, which devoured profits of most banks in FY18.
Here comes ‘Sashakt’, a new scheme, which is expected to
be ‘Empowered’ enough to bring back to the banking
industry its profits, its strength, its reputation. Before
analysing the scheme, let us peep into the background of
the problem.
Background of the problem
A. Menace of NPAs
The last few years have kept the banking industry in hot
water mainly due to the problem of burgeoning NPAs. As
per RBI’s Financial Stability Report of June 2018, SCBs’
Gross Non-Performing Advances (GNPA) ratio rose from
10.2 percent in September 2017 to 11.6 percent in March
2018. However, their Net Non-Performing Advances
(NNPA) ratio registered only a smaller increase during the
Figure 1
Source: RBI’s Financial Stability Report of June 2018
36 The Indian Banker
Will ‘Sashakt’
Prove its Name?
Sanjay Gupta 
period due to increase in provisioning. These can be seen
from the Figures 1 and 2.
The GNPA ratio in the industrial sector rose from 19.4
percent in September 2017 to 22.8 percent in March 2018,
whereas stressed advances ratio (ratio of GNPAs including
restructured standard advances) increased from 23.9 percent
to 24.8 percent during the same period.
Within the industry, the stressed advances ratio of sub-
sectors such as ‘gems and jewellery’, ‘infrastructure’, ‘paper
and paper products’, ‘cement and cement products’ and
‘engineering’ registered increase in March 2018 from their
levels in September 2017. Figure 3 represents the stressed
advances ratio of major sub-sectors within the industry.
From Figure 3, some good signs are also visible for a few
sub-sectors. For example, the asset quality of ‘food
processing’ and ‘textiles’ sub-sectors improved between
September 2017 to March 2018.
Figure 2
Vol VI No. 1 - August 2018

Figure 3
Source: RBI’s Financial Stability Report of June 2018
B. PCR (Provision Coverage Ratio)
The PCR increased across all bank groups in March 2018
from its level in September 2017. Among the bank groups,
FBs (Foreign Banks) had the highest PCR (88.7 percent)
followed by PvBs (Private Sector Banks) and then by PSBs
(Public Sector Banks).
Figure 4
Source: RBI’s Financial Stability Report of June 2018
C. Toll on profitability
High provisions have taken a toll on banks’ profitability
also. As banks are not allowed to recognise income on
NPAs, it affects their quantum of interest earned, and in
turn, their NIM (Net Interest Margin) deteriorates. Thus,
profitability is affected negatively. Impact of NIM on
banks’ profitability has also been tested in RBI’s research
report named ‘Asset Quality and Monetary
Transmission in India’. At the conclusion of the
research, it has been stated, ‘This paper was an attempt to assess
whether the recent deterioration in the health of the banks in India
had any adverse impact on monetary transmission. The analysis
suggests that credit risk, proxied separately by the gross NPA and
Vol VI No. 1 - August 2018
ARTICLE
stressed asset ratios, had a positive impact on the NIMs of
scheduled commercial banks’. In Figure 5, the components of
banks’ profits have been shown from March 2016 to
March 2018.
D. Macro impact on the economy
The problem before the government is that if they fail to
bring about the turnaround in large NPA units of these
industry sectors, these will have to be put to bankruptcy
procedure through NCLT and consequently, the units may
go to liquidation also. It will mean serious disturbances in
the economy. The most significant disturbance will be that
a large number of people will be unemployed. As a result,
national income, GDP and also government revenues will
decrease. This situation will indisputably bring misfortune
for banking sector also, which is very crucial for the overall
health of the economy.
Figure 5
Source: RBI’s Financial Stability Report of June 2018
Therefore, it is imperative to ensure an operational
turnaround of such NPA units, to retain the value of
assets. If this is made possible, it will be beneficial for trio
The Indian Banker 37
 ARTICLE
Figure 6
Source: RBI’s Financial Stability Report of June 2018
viz units themselves, banks and economy. If businesses are
revived, they will rather create more jobs, not to talk of job
losses. At the same time, ensuring sound corporate
governance of these units and strong credit architecture of
banks will go a long way in achieving the objectives of
economic policies.
E. Share of large borrowers
As per Figures 6 and 7, though share of large borrowers
(who has aggregate fund-based and non-fund based
exposure of INR 5 crores and above) in Scheduled
Commercial Banks' (SCBs) total loan portfolios, as well as
their share in GNPAs, declined marginally between
September 2017 and March 2018, in absolute terms it
remains substantial. 85.6 percent of GNPA of SCBs as on
31st March, 2018, was due to large borrowers.
It is big enough to attract the immediate attention of
policymakers. It calls for a model / tool which could go a
long way for the resolution of NPAs of large borrowers. In
figure 7, it can be noticed that the number of large
borrowers under SMA-1 and SMA-2 categories have
declined, which could be good news, had they not
increased in NPA and SMA-0 category.
Figure 8
Source: RBI’s supervisory returns
38 The Indian Banker
Figure 7
As per RBI’s Financial Stability Report of June 2018, top
100 large borrowers accounted for 15.2 percent of gross
advances and 26 percent of GNPAs of SCBs. This gives
emphasis that resolution of large NPAs is the shortcut key
to the problem of NPAs. ‘There are about 200 accounts, each of
which owes over INR 500 crores to banks. Total exposure to these
200 accounts is about INR 3.1 lac crore.’ - Economic Times
Idea of a bad bank
In the past one year or so, the government’s think tank
came up with a few ideas to tackle with the problem of
high-value NPAs. All these ideas were close to creating a
centralised body to handle the menace of large NPAs. One
of them was a public asset rehabilitation agency. For the
lack of a better word, it was being called a bad bank.
However, that idea was not taken forward.
Birth of ‘Sashakt’
In view of the growing NPAs of the banking industry,
RBI and governments have deliberated on several
occasions to find the way-outs for the problem. In the past
two decades, government and banking industry have
invented new and newer tools to grapple with the menace
of NPAs. As a result of it, the industry has witnessed
DRT, SARFAESI, IBC, etc.
It was in early June 2018 that a bankers’ panel, chaired by
Sunil Mehta, Chairman of Punjab National Bank was
formed to consider the feasibility of an ARC (Asset
Reconstruction Company) to address the stressed
asset issue.
Consequently, the government accepted the resolution
scheme submitted by the said committee of bankers to
tackle India’s mounting bad loans. The scheme, titled
‘Sashakt’, aims at resolving the problem of NPAs through a
market-led approach.
Vol VI No. 1 - August 2018

‘Under the scheme, bankers are not seeking any dispensation or
forbearance from the RBI’, told Piyush Goyal, Interim Finance
Minister at a press conference on 3rd July, 2018.
Excerpts of the press conference by the
Interim Finance Minister
Broad modalities of the scheme are being finalised, as per
the requirements of the economy and industry.
The key points of the plan, as derived from the press
conference are as below:
• No proposal to create a bad bank
• Free from government intervention
• Recommendations completely compliant with extant
regulations
• Transparent market-based solution
• Focus on asset turnaround to ensure job protection
• Augmenting asset resolution capability by establishing
a professionally managed Asset Management Company
(AMC).
• AMC to be supported by attracting institutional funding
in stressed assets through Alternative Investment Funds
(AIFs).
• Consolidation of stressed assets under AMC for better
and faster decision making
• The suggested structure is by and large capital neutral
• Creation of a platform for trading assets
• There will be a five-pronged approach
1. SME Resolution approach (SRA)
2. Bank-led resolution approach (BLRA)
3. AMC / AIF led resolution approach: for large assets
with exposure > INR 500 crores. These have the
potential for a turnaround.
4. NCLT / IBC process: for larger assets already with
NCLT and any other assets not resolved via
approach 2 and 3 above.
5. Asset trading platform: for both performing and
non-performing assets.
Vol VI No. 1 - August 2018
ARTICLE
Approaches under ‘Sashakt’ scheme and points
to ponder
A. SME Resolution Approach (SRA)
(For smaller assets with exposure up to INR 50 crores)
• Banks should create a focused vertical for management
of stressed assets for priority resolution of SMEs.
• Banks should devise template resolution approaches for
different types of assets based on simple metrics and
also define SOP for resolution.
• Banks should set-up an empowered SME steering
committee for formulating / validating of these
schemes including the provision of additional funds.
• The resolution should be non-discretionary, non-
discriminatory and completed in a time-bound manner
within 90 days.
• Additionally, banks should put in place a robust
monitoring and review mechanism to track resolution
with clear escalation metrics for breaching timelines.
Points to ponder
• Almost all banks were already having specialised units
to deal with high value stressed assets.
• Non-discretionary, non-discriminatory approach: In
SME, every case is unique in itself, and the reason of
asset being into stress may be different for each unit. In
such a situation, a ‘one size fits all’ solution may only
aggravate the situation.
B. Bank Led Resolution Approach (BLRA)
(For mid-sized assets with exposure > INR 50 crores and
up to INR 500 crores)
• Financial institutions to enter into an Inter-Creditor
Agreement to authorise the lead bank to implement a
resolution plan in 180 days.
• The lead bank would then prepare a resolution plan
including empanelling turnaround specialists, and
other industry experts for the operational turnaround of
the assets.
• Large banks will help smaller lead banks run the
process if required.
• Independent screening committees of eminent
personalities would be appointed by IBA to validate due
process within maximum 30 days.
The Indian Banker 39
 ARTICLE
• The resolution plan should be approved by lenders
holding at least 66 percent debt.
• Once the resolution plan is approved, lead bank would
be responsible for executing the plan.
• In case the lead bank is unable to complete the
resolution process within 180 days, the asset would
move to NCLT.
Points to ponder
• It is difficult to make out how Inter-Creditor
Agreement is going to benefit the banks, as the major
problem in most of the cases was not of a consensus
among consortium lenders; rather it was inherent
stress in the borrowing entity or lack of investor to buy
the entity.
• Promoters of units consider themselves ‘industry
experts’. As they failed, hunt for a ‘turnaround
specialist’ from outside is required now. As such, who
can be considered a turnaround specialist, is a big
question. As promoters will never like to relinquish
their enthroned position, the chances are high that they
will rate the process as flawed or label it as a dirty game.
• Will large banks share their expertise with smaller banks
in case the lead bank is a small bank?
• It will be crucial to respect the timeline of 180 days to
avoid the bankruptcy process under NCLT.
C. AMC / AIF Led Resolution Approach
(For large assets with exposure > INR 500 crores)
• It has been assumed that these assets have the potential
for a turnaround.
• Under this approach, an independent Asset
Management Company (AMC) would be set up.
• Alternative Investment Fund (AIF) would raise funds
from institutional investors; banks have an option to
invest if they wish to participate in the upside.
• Price discovery through open auction by the lead bank
– all ARCs / AMCs / other investors are free to bid.
• This AMC / AIF will become a market maker and
thereby ensure healthy competition, fair price and
cash recovery.
• ARC will issue security receipts (NCDs) which will be
subscribed by the AIFs.
40 The Indian Banker
• Security Receipts (SRs) to be redeemed within 60 days.
• The AMC / AIF will conduct operational turnaround
of the asset by itself or by engaging with an external
party.
• This AIF can also bid for assets in the NCLT and thus
play a broader role in resolutions.
• Transfer of assets from banks to AMC / AIF will be
based on market price and not book value.
• The net effect is building an open architecture and a
vibrant market for stressed assets.
Points to ponder
• What the new AMC will do, is a point to think over.
In India, we already have a few Asset Reconstruction
Companies (ARCs) that are doing the same task.
However, this industry has not picked up well for
two main reasons. First is the lack of financial depth
and the other is about issues in the pricing of
stressed assets.
• Banks that put stressed assets under the hammer have
always wanted a higher price to make up for at least a
part of their losses, while ARCs strive for cheap deals,
which is the ground of their profitability and existence.
Thus, there has always been a clash of interests. We will
have to wait to see how different the new AMC
proposed by the government will be.
• The big question is - Who will invest in the AIF? This
is because empirical evidence shows that there has not
been much interest from the private sector to
participate in the stressed asset market so far. The
success of the IBC gave some hope mainly because a
few large corporations came forward to acquire
distressed assets, as was the case with the Tata Steel-
Bhushan Steel deal and the Vedanta-Electrosteel deal.
But, these are exceptions. Past has witnessed many
stressed asset deals having been stuck for years for want
of investors with capacity and intention.
• The best part of it is that price will be discovered
through open auction. All stakeholders and also
outside investors are allowed to bid in the process.
It is expected to bring forth a better and ideal value
of the asset.
• Since SRs will be redeemed in 60 days, it will provide
liquidity and growth capital to banks. Banks, which are
mostly grappling with capital crunch, perhaps could not
ask for more.
Vol VI No. 1 - August 2018

Problems ahead
While the new proposal is being hoped to be a good way-
out to foil the menace of NPAs, on the other hand, it gives
birth to scepticism on a few points.
• The problem in resolving the bad assets of banks in
India was always a lack of buyers with deep pockets,
who can execute large buyouts of stressed assets. This
is a fact, which may again stand as a hurdle in achieving
the objectives of the scheme.
• As per the presentation put up by a panel of bankers,
about INR 3 lac crores is stuck in NPA accounts of
INR 500 crores and above. The amount needed
immediately would be the average percentage estimated
recovery. So, the amount can vary. Suppose, if it is 35
percent INR 1.05 lac crore of funds would be required
for recovery. It is not going to be an easy task.
• The panel estimated that public sector lenders would
need INR 1.1 - 1.3 lac crores over a two-year period to
deal with the resolution of ailing companies. While the
government will provide INR 65000 crores; for the
Table 1
Source: The Times of India dated 7th July, 2018
remaining amount, the banks may be required to sell off
their non-core assets and / or raise equity. Banks are
already grappling with the problem of capital crunch.
As such, they will have to strive more on this count.
• It is envisaged that the banks may also invest in AIFs to
tap the benefits of turnaround (upside) of the unit. If a
bank can expect the upside in future, why will it like to
get rid of it? It is like selling fully and again purchasing
partially at the same time.
• The idea of transferring the asset on market price is
fantastic, but there is apprehension that if there are not
many bidders, the few bidders available may sometimes
Vol VI No. 1 - August 2018
ARTICLE
act in a clique / syndicate and thus, influence the fair
price of the asset.
Conclusion
Creating a bigger bad asset resolution market under the
proposed ‘Sashakt’ plan is a good and innovative step and
is a brainchild of a few celebrated and veteran high-profile
bankers. However, the success of the plan will depend on
the scheme’s capability to generate sufficient investor
interest and on government’s promise to keep it free of
Government intervention. Only time will tell whether
‘Sashakt’ will prove its name or not.
References:
RBI’s report named ‘Asset Quality and Monetary Transmission in India’
RBI’s Financial Stability Report of June 2018
RBI’s supervisory returns
RBI’s notification dated February 12, 2018
Websites of Economic Times , Bloomberg Quint, Business Standard , Business Line ,
Times of India.
About the Author
Sanjay Gupta is Chief Manager (Research)
in State Bank Institute of Credit and Risk
Management (SBICRM), Gurugram.
He has more than 19 years of banking
experience in SBI, out of which
approximately 7 years as a branch head.
Earlier, he had worked in Canara Bank also
as an officer.
His academic qualifications include M Com, CAIIB, PGDFA,
AMFI, CIF (SBI LIFE), Specified Person (SBI General Insurance).
He has also to his credit certificate courses in Customer
Service and Banking Codes and Standards; Foreign Exchange
Facilities for Individuals; Trade Finance; KYC & PML and
Prevention of Cyber Crimes and Fraud Management.
He has won first prize in Micro Research Competition of Indian
Institute of Banking & Finance for 2016-17 and got first
position in All India Inter Bank Hindi Article Contest organised
by Vijaya Bank for 2017-18.
His articles have been published in Bank Quest, Banking
Finance, Prayaas etc.
He can be contacted at sanjay.gupta786@sbi.co.in.
The Indian Banker 41
 LEGAL
A creditor is one who has advanced money which is
repayable as per the terms and conditions of
sanction/agreement. A secured creditor is one in whose
favour a mortgage, charge, hypothecation, or Pledge is
created as security for repayment of the debts. In the
event of default by a borrower, ‘Secured’ creditors are
entitled to enforce their securities and realise their dues.
Banks generally lend on the strength of collateral securities
so that they can recover their dues therefrom in the event
of default in repayment of the loan amount together with
interest. A ‘Secured Creditor’ is entitled to enforce its
securities and to appropriate Sale proceeds to the exclusion
of all other creditors. However, in certain circumstances,
the secured assets of the Creditors are required to be either
completely or partly ceded in favour of Statutory
Bodies/Government for recovery of their dues.
Stipulation of Securities is a pure credit decision, and it is
within the discretion of a Sanctioning Authority to
stipulate or not to stipulate securities or the extent thereof
depending on the facts and circumstances of each case. In
a case where Securities are stipulated, sharing or ceding of
such securities with other agencies is not factored in at the
time of sanction of the credit facilities. The circumstances
under which such issue of sharing or completely ceding of
Banks’ securities arises are discussed in this article.
In the course of business, an employer incurs various
liabilities to the Government and Statutory Bodies. An
employer has to compulsorily contribute under Employees
Provident Fund & Miscellaneous Provisions Act, 1952,
Employees State Insurance Act, 1948 and remit Sales Tax
(VAT) collected from purchasers of goods under various
states’ Sales Tax legislation, Goods and Service Tax,
electricity dues etc, Though securities are created in favour
of Secured Creditors, various legislations had created first
42 The Indian Banker
How ‘Secured’ are
Secured Creditors?
K S Hareesh Kumar
charge on the properties of the borrowers/employers like
Sales Tax (VAT/GST), Provident Fund, Workmen’s
Compensation under Workmen’s Compensation Act, 1923,
Mines and Minerals (Regulation & Development) Act, 1957,
Workmen’s dues under Companies Act, 2013, Municipal
Taxes etc.
Crown debts
As observed by the Supreme Court in the case of Dena
Bank Vs Bikhabhai Prabhudas Parekh & Co
[2000 (3) SCR 50] where the debts of the Government
(Crown) and Subjects conflict, the debts due to
Government get precedence and priority over all other
debts. The Court explained the doctrine of priority of
Crown Debts as under:
What is the common law doctrine of priority or precedence of crown
debts? Halsbury, dealing with general rights of the crown in relation
to property, states where the Crown's right and that of a subject meet
at one and the same time, that of the Crown is in general preferred,
the rule being ‘detur digniori’ (Laws of England, Fourth Edition
Vol. 8 para 1076 at page 666). Herbert Brown states - ‘Quanta jus
domini Regis et submit concurrent jus Regis preferred debt - Where
the title of the king and the title of a subject concur, the king's title
must be preferred. In this case, detur digniori is the rule... where the
titles of the king and a subject concur, the king takes the whole...
where the king's title and that of a subject concur or are in conflict,
the king's title is to be preferred’ (Legal Maxims 10th edition, pp.3
5-3 6). This common law doctrine of priority of State's debts has
been recognised by the High Courts of India as applicable in British
India before 1950, and hence the doctrine has been treated as ‘law in
force’ within the meaning of Article 372(1) of Constitution. An
illuminating discussion of the subject made by Chagla C J is to be
found in Bank of India vs John Bowman [AIR 1955 Bom 305].
We may also refer to Full Bench decision of Madras High Court in
Vol VI No. 1 - August 2018

Manickam Chettiar v. Income Tax Officer, Madura : [1937] 5
ITR 534 (Mad) as also to two Judicial Commissioner’s Court
decisions in People's Bank of Northern India Ltd. v. Secretary of
State for India AIR 1935 Sind 232 and Vassanbai Topandas v.
Radhabai Tirathdas and Ors. Without multiplying the authorities,
we would straightaway come to the Constitution Bench decision in
Builders Supply Corporation vs Union of India [1965] 56 ITR
91(SC).
8. The principle of priority of Government debts is founded on the
rule of necessity and of public policy. The basic justification for the
claim for priority of state debts rests on the well-recognised principle
that the State is entitled to raise money by taxation because unless
adequate revenue is received by the State, it would not be able to
function as a sovereign government at all. It is essential that as a
sovereign, the State should be able to discharge its primary
governmental functions and in order to be able to discharge such
functions efficiently, it must be in possession of necessary funds and
this consideration emphasises the necessity and the wisdom of
conceding to the State, the right to claim priority in respect of its tax
dues. (See Builders Supply Corporation, Supra).
10. However, the Crown's preferential right to recovery of debts over
other creditors is confined to ordinary or unsecured creditors. The
Common Law of England or the principles of equity and good
conscience (as applicable to India) do not accord the Crown a
preferential right for recovery of its debts over a mortgagee or pledgee
of goods or a secured creditor. It is only in cases where the Crown's
right and that of the subject meet at one and the same time that the
Crown is in general preferred. Where the right of the subject is
complete and perfect before that of the King commences, the rule does
not apply, for there is no point of time at which the two rights are at
conflict, nor can there be a question which of the two ought to prevail
in a case where one, that of the subject has prevailed already. In Giles
vs Grover 1832 131 ER 563, it has been held that the Crown has
no precedence over a pledgee of goods. In Bank of Bihar vs State of
Bihar and Ors [AIR 1971 SC 1210], the principle has been
recognised by this Court holding that the rights of the pawnee who
has parted with money in favour of the pawnor on the security of the
goods cannot be extinguished even by lawful seized of goods by
making money available to other creditors of the pawnor without the
claim of the pawnee being first fully satisfied. Rashbehary Ghose
states in Law of Mortgage (T.L.L., Seventh Edition, p. 3 86) - ‘It
seems a Government debt in India is not entitled to precedence over a
prior secured debt.’
Therefore, the Crown’s preferential right to recovery of
debts over other creditors is confined to ordinary or
unsecured creditors but do not accord the Crown a
preferential right for recovery of its debts over a mortgagee
or pledgee of goods or a secured creditor.
However, the question that arose, in this case, was whether
the recovery of sales tax dues (amounting to crown debt)
should have precedence over the right of the Bank to
Vol VI No. 1 - August 2018
LEGAL
proceed against the property of the borrowers mortgaged
in favour of the Bank. The Court, after examining the
provisions of the Karnataka Sales Tax Act, 1957 and
having found that Section 158 of the Karnataka Land
Revenue Act, 1964 specifically provided that the claim of
the State Government to any amounts of money
recoverable under the provisions of Chapter XVI shall
have precedence over any other debt, demand or claim
whatsoever including in respect of mortgage, held that the
dues payable under Sales Tax shall prevail over the dues of
the Secured Creditor Bank.
Several State Sales Tax and VAT laws, like Madhya Pradesh
State, Bombay Sales Tax Act etc, have included similar
provisions according priority or First Charge in favour of
Sales Tax dues and hence the Secured Assets of the Banks
were required to be ceded in favour of those authorities.
Similarly, Section 82 of recently enacted Central Goods and
Service Tax Act, 2017 (GST), also provided that any
amount payable to the Government on account of tax,
interest or penalty shall be a first charge on the property of
such taxable person, save as otherwise provided in the
Insolvency and Bankruptcy Code, 2016.
Income tax 
There is no provision in the Income Tax Act, 1961 creating
a priority of charge in favour of the Income Tax
Department. Therefore, a Secured Creditor’s charge over
the property will have primacy over the Income Tax and
the Income Tax department can claim their share in the
sale proceeds of the Secured Assets only in cases where
there is some surplus left over the dues of the secured
creditor or where a creditor is unsecured. The case of The
Stock Exchange Vs V S Kandalgaonkar [AIR 2015 SC 193]
decided by the Supreme Court on the primacy of the
Income Tax vis-a-vis a Secured Creditor can be referred to
in this regard.
Central Excise & Customs’ dues
Section 11 of Central Excise Act, 1944 read with Rule 230
of Central Excise Rules authorised detention of all
excisable goods, materials, preparations, plant, machinery,
vessels, utensils, implements and articles, in the custody or
possession of the person or persons carrying on such trade
or business or from person succeeding the business or
trade or part thereof for such time till dues are paid or
recovered. In the case of State of Karnataka Vs Shreyash
Papers (P) Ltd. [JT 2006 (1) SC 180], it was held by the
Supreme Court that the rule 230 did not in any way create
a charge over any of the goods enumerated therein as it
only empowered ‘detention’ and there was no other
provision under the Central Excise Act or the Rules which
envisaged to create any charge over the assets of a unit to
The Indian Banker 43
 LEGAL
enable the realisation of the Central Excise Duty
on priority.
However, Section 66 of the Finance Act, 2011, introduced
Section 11E in the Act creating First Charge on the
property of an assessee. However, the same is subject to
Section 529A of the Companies Act, 1956 and RDDB Act
and SARFAESI Act. Similarly, Section 51 of the Finance
Act, 2011 introduced Section 142A to the Customs Act,
1962 on the same lines.
Therefore, Central Excise and Customs Department shall
have priority over Banks’ (secured creditor) dues only
where the dues of the Banks are less than INR one lakh
since the SARFAESI Act, 2002 is applicable only where the
dues of a Secured Creditor are more than INR one lakh.
Provident fund
Sub-section (2) of Section 11 of the Employees' Provident
Funds and Miscellaneous Provisions Act, 1952, provided
that the amount due from an employer shall be the first
charge on the assets of the establishment and should be
paid in priority to all other debts. Therefore, Secured
Creditors dues are subject to the dues of the Provident
Fund despite being a Secured Creditor.
Workmen’s dues under Companies Act, 2013
Section 326 of the Companies Act, 2013 (corresponding to
Section 529A of the Companies Act, 1956) provides that,
in the winding up of the Company, workmen’s dues
towards wages and salary payable for two years preceding
the order of winding up shall rank pari-passu with the dues
of the Secured Creditors. The import of the same is that
the sale proceeds of the secured assets sold by the
Liquidator have to be distributed proportionately between
the workmen of the Company and the Secured Creditor.
Further, if there are also dues in respect of Employees
Provident Fund under Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952 (EPF) in respect of a
Company, the dues payable to the EPF shall get priority
over the dues payable to a secured creditor on pari-passu
basis under Section 326 of the Companies Act, 2013.
In the case of Employees Provident Fund Commissioner
Vs Official Liquidator of Esskay Pharmaceuticals Ltd.
[AIR 2012 SC 11] a question arose for consideration as to
whether priority given to the dues payable by an employer
under Section 11 of the EPF Act is subject to Section
529A of the Companies Act, 1956 in terms of which the
workmen's dues and debts due to secured creditors are
required to be paid in priority to all other debt. It was
decided by the Supreme Court that the dues payable under
44 The Indian Banker
EPF Act shall have priority over Secured Creditors’ dues
and held as under:
‘An analysis of Section 11 of the EPF Act shows that it gives
statutory priority to the amount payable to the employees over other
debts. Section 11(1) relates to an employer who is adjudged insolvent
or being a company against whom an order of winding up is made. It
lays down that the amount due from the employer in respect of any
contribution payable to the Fund or, as the case may be, the Insurance
Fund, damages recoverable under Section 14B, accumulations
required to be transferred under Section 15(2) or any charges payable
by him under any other provision of the Act or the Scheme or the
Insurance Scheme shall be paid in priority to all other debts in the
distribution of the property of the insolvent or the assets of the
company being wound up, as the case may be. Section 11(2) contains
a non obstante clause and lays down that if any amount is due from
an employer whether in respect of the employee’s contribution deducted
from the wages of the employees or the employer’s contribution, the
same shall be deemed to be the first charge on the assets of the
establishment and shall, notwithstanding anything contained in any
other law for the time being in force, be paid in priority to all other
debts. To put it differently, Sub-section (2) of Section 11 not only
declares that the amount due from an employer towards contribution
payable under the EPF Act shall be treated as the first charge on the
assets of the establishment, but also lays down that notwithstanding
anything contained in any other law, such dues shall be paid in
priority to all other debts.
This is also a legislative recognition of the fact that the workmen
contribute to the growth of the capital and industry and in the event
of winding up of the company, they are entitled to get their legitimate
share in the assets of the company by being treated at par with other
secured creditors.
The EPF Act is social welfare legislation intended to protect the
interest of a weaker section of the society, i.e. the workers employed in
factories and other establishments, who have made a significant
contribution in the economic growth of the country. The workers and
other employees provide services of different kinds and ensure
continuous production of goods, which are made available to the
society at large. Therefore, legislation made for their benefit must
receive a liberal and purposive interpretation keeping in view the
Directive Principles of State Policy contained in Articles 38 and 43
of the Constitution.’
In this case, it was held by the Supreme Court that in case
of inconsistency between the provisions of two
enactments, where both of which can be regarded as
special in nature, the conflict has to be resolved by
reference to the purpose and policy underlying the two
enactments and the clear intendment conveyed by the
language of the relevant provisions therein. In the said
case, the Company was under liquidation, and the Supreme
Court had to resolve the issue as to whether the priority of
the dues payable by an employer under Section 11 of the
Vol VI No. 1 - August 2018
 LEGAL

EPF Act,1952 was subject to Section 529A of the their own, Sections 325 and326 of the Companies Act,
Companies Act, 1956. As per Section 529A of the Act, the 2013 would be applicable, and the sale proceeds of the
workmen's dues and debts due to secured creditors are Secured Creditors have to be shared with the dues of the
required to be paid in priority to all other debts. workmen. As per Section 325 (3)(b), ‘Workmen’s Dues’
include (i) wages and salary, (ii) compensation due under
Though EPF Act and Companies Act, 1956 are special Workmen’s Compensation Act, 1923 and (iii) all sums due
enactments, yet, in view of EPF Act being a welfare to any workman from the provident fund, the pension fund
legislation and keeping the intention of the Parliament in and the gratuity fund. An illustration is provided under
mind, it was held that the dues of the EPF would have Section 326 which gives an idea as to how the distribution
priority over the dues payable to a Secured Creditor under of sale proceeds to be made between the Workmen and
Section 529A of the Companies Act, 1956. Hence, Secured Secured Creditor (s) as under:
Creditors were not entitled to share securities on pari-passu
basis either as dues payable under Welfare legislations ‘The value of the security of a secured creditor of a company is INR
get priority. 1,00,000. The total amount of the workmen’s dues is INR
1,00,000. The amount of the debts due
Dues payable under ESI Act THERE IS A PARADIGM SHIFT from the Company to its secured creditors is
INR.3,00,000. The aggregate of the
Section 94 of the Employees State IN THE NEWLY ENACTED amount of workmen’s dues and the amount
Insurance Act, 1948 also provided of debts due to secured creditors is INR
that the amount due in respect of any INSOLVENCY AND 4,00,000. The workmen’s portion of the
contribution or any other amount security is, therefore, one-fourth of the value
payable under this Act to be paid in BANKRUPTCY CODE, 2016. of the security, that is INR 25, 000’.
priority to all other debts. Similarly,
Section 14(4) of the Workmen’s SECTION 53 PROVIDED THAT From the above illustration, it is clear
Compensation Act, 1923, Section that, in normal circumstances, a
25(2) of the Mines and Minerals WHERE A COMPANY IS Secured Creditor would have got the
(Regulation & Development) Act, entire amount of INR 1, 00,000/- as
1957 also provide priority of their ORDERED TO BE envisaged at the time of sanction.
dues over the dues of any other However, a secured creditor has to
creditor including Secured Creditors. LIQUIDATED BY THE NCLT, forego one-fourth of the sale
consideration towards the dues of
Insolvency & Bankruptcy THE SECURED CREDITORS the workmen if the Company is
Code, 2016 under liquidation.
HAVE BEEN GIVEN PRIORITY,
However, there is a paradigm shift in The said provision is laudable and is
the newly enacted Insolvency and OVER ALL OTHER DUES made to help the workmen to cope
Bankruptcy Code, 2016. Section 53 with sudden loss of employment on
provided that where a company is INCLUDING CROWN DEBTS. winding up of the Company.
ordered to be liquidated by the However, from the point of a Secured
NCLT, the secured creditors have been given priority, over Creditor, the same would result in loss of security.
all other dues including crown debts, after meeting the
costs of Insolvency Resolution Costs and Liquidation However, in case of a company which is not under
Costs, but shall rank pari-passu with 24 months of liquidation, the question of sharing of sale proceeds of
wages of the workmen of the Corporate Debtor, if the secured assets with the workmen does not arise as held by
Secured Creditor relinquishes the security. It entails the Supreme Court in the in the case of Bank of
sharing of sale proceeds with dues of the workmen for a Maharashtra Vs Pandurang Keshav Corwardkar [2013 (7)
period of 24 months. The Code conceded priority even SCC 754].
to an unsecured creditor over the dues of the
Government, Central or State, under this provision, and In the case of Employees Provident Fund Commissioner
as such an unsecured Bank or Financial Institution is Vs Esskay Pharmaceuticals Ltd (cited supra), one of the
entitled to receive their dues even prior to the dues of reasons for deciding the priority in favour of the Provident
the Government. Fund, as indicated by the Supreme Court, was as to the fact
that unlike the Provident Fund and other legislation, there
If a secured creditor decides to stand outside the was no provision in the DRT Act (Recovery of Debts Act,
liquidation proceedings and to enforce the securities on 1993) and SARFAESI Act according priority to the banks.

Vol VI No. 1 - August 2018 The Indian Banker 45

 LEGAL

Recently, Parliament amended SARFAESI Act, 2002 and 0576/2017], the High Court of Gujarat held that the
Recovery of Debts and Insolvency Act, 1993 (erstwhile amendment was of no consequence in so far as the dues of
RDDB Act,1993) and added Section 26E and Section 31B the PF were concerned and observed as under:
respectively which provided that the debts due to Banks
and Financial Institutions shall have priority over all other ‘Inclusion of Section 31B does not change the position
debts and all revenues, taxes, cesses and other rates payable in so far as the primacy of claim under the provisions
to the Central Government or State Government or local of the EPF Act is concerned. The mention of
authority which came into effect from 1.9.2016. Government dues which would include revenues,
taxes, cesses and rates due to the Central Government,
After the said amendment, the Full Court of Madras High State Government or local authority would not take
Court held that, in the case of the Asst. Commissioner into its fold, the first charge created by operation of
(CT) Vs. Indian Overseas Bank, the rights of a secured law in the form of Section 11(2) of the EPF Act’.
creditor to realise secured debts due and payable by the sale
of assets over which security interest In the case of GMG Engineers &
is created would have priority over all RIGHTS OF A SECURED Contractor Pvt Ltd Vs State of
other debts and Government dues Rajasthan and Ors [ MANU/RH/
including revenues, taxes, cess and CREDITOR TO REALISE 0556/2017] and Madras High Court
rates due to the Central Government, in the case of Phoenix ARC Pvt Ltd
State Government or Local Authority. SECURED DEBTS DUE AND Vs Asst Provident commissioner
[MANU/TN/2217/2018] had held
Similarly, in the case of Axis Bank Vs. PAYABLE BY THE SALE OF to the same effect that the dues of
State of Maharashtra [2017(3)ABR the Provident Fund shall prevail over
305], the Bombay High Court held ASSETS OVER WHICH Secured Creditors notwithstanding
that the claim of the Bank should the said amendment.
have precedence over the dues of the SECURITY INTEREST IS
State for the realisation of VAT dues Dues Payable by the borrower
despite the non-obstante clause CREATED WOULD HAVE to the Electricity Companies
contained in Maharashtra Value
Added Tax Act,2002. PRIORITY OVER ALL OTHER Where factory land & building is
mortgaged to the banks, the
However, interestingly, Rajasthan DEBTS AND GOVERNMENT prospective purchasers/bidders seek a
High Court had recently decided reduction in the value of the property
differently on this issue in the case of DUES INCLUDING REVENUES, to the extent of the Government
ICICI Bank Vs. State of Rajasthan dues and electricity dues. As discussed
[2018(1) WLN517 (Raj)]. In this case, TAXES, CESS AND RATES DUE above, in view of the amendment to
also, the similar issue as to priority of RDB Act, 1993 and SARFAESI Act,
dues under Value Added Tax of the TO THE CENTRAL 2002, the dues of the Government
State of Rajasthan was involved, and and local authorities would no more
the Bank had claimed priority on the GOVERNMENT, STATE rank priority over the dues of the
basis of Section 26E and 31B of the Secured Creditors.
SARFAESIA and Recovery of Debts GOVERNMENT OR LOCAL
& Bankruptcy Act, 1993. However, However, the moot point is whether
the High Court of Rajasthan held, AUTHORITY. the prospective purchaser is liable to
inter alia, that there is a difference make payment of the arrears for the
between ‘First Charge’ and ‘Priority’ and since the said consumption of electricity by the previous owner. The
VAT Act had created a statutory first charge which cannot Courts have been consistently holding that an auction
be nullified by Section 26E of the SARFAESI Act and purchaser is not liable to clear the arrears incurred by the
rejected the claim of the Bank. The position of law as previous owner in respect of power supply to the previous
enunciated by Rajasthan High Court appears to be not consumer. The Kerala High Court had, in the case of
correct. But, if the view of the Rajasthan High Court Souriyar Luka Vs. Kerala State Electricity Board [AIR 1959
is upheld by Supreme Court, the purpose of the Ker 199], held that an auction purchaser was not liable for
amendment would be completely defeated. any default committed by the previous consumer. In the
case of Isha Marbles Vs Bihar State Electricity Board
Similarly, in the case of Indian Overseas Bank Vs. [1995(2)SCC 648], a three-judge bench of the Supreme
Employees Provident Fund Organisation [MANU/GJ / Court had an occasion to deal with the question as to

46 The Indian Banker Vol VI No. 1 - August 2018


whether the auction purchaser was liable for the arrears.
After considering the provisions of Electricity Act and the
regulations made thereunder, it was held that the Electricity
Board could not seek the enforcement of the contractual
liability of the erstwhile consumer by a third party and that
it was impossible to impose on the purchasers a liability
which not incurred by them.
In the case of Pashimanchal Vidyut Vitaran Nigam Ltd Vs
DVS Steels and alloys Pvt Ltd [AIR 2009 SC 647], it was
held by the Supreme Court as under:
‘The supply of electricity by a distributor to a consumer is “Sale of
goods”. The Distributor as the supplier and the owner/Occupier of
the premises with whom it enters into a contract for the supply of
electricity are parties to the contract. A transferee of the premises of
a subsequent occupant of premises with whom the supplier has no
privity of contract cannot be asked to pay the dues of his predecessor-
in-title or possession, as the amount payable towards the supply of
electricity does not constitute a charge on the premises.
A purchaser of premises cannot be foisted with the electricity dues of
any previous occupant, merely because he happens to be the current
owner of the premises. The supplier can use therefore neither file a
suit nor initiate revenue recovery proceedings against a purchaser of
premises for the outstanding electricity dues in the absence of any
contract to the contrary’.
In the case of Ahmedabad Electricity Company Ltd Vs
Gujarat Inns Pvt Ltd [(2004)3 SCC 587], reiterated the said
legal position. However, it appears that the Court had made
a distinction as to the transfer of the connection from the
name of the erstwhile owner and fresh connection and
observed that the auction purchaser is not liable to pay the
dues of the previous owner if he had applied for fresh
connection. In the case of Haryana State Electricity Board
Vs Hanuman Rice Mills [(2010)9SCC145], the legal
position was summarised as under:
‘Electricity arrears do not constitute a charge over the property.
Therefore, in general law, a transferee of premises cannot be made
liable for the dues of the previous owner/occupier’.
‘Where the statutory rules or terms and conditions of supply which
are statutory in character, authorize the supplier of electricity to
Vol VI No. 1 - August 2018
LEGAL
demand from the purchaser of a property claiming reconnection or
fresh connection of electricity, the arrears due by the previous
owner/occupier in regard to supply of electricity to such premises, the
supplier can recover the arrears from a purchaser’.
Therefore, there is no liability for a secured creditor to
discount the value on account of electricity and a Secured
Creditor is not liable for payment of the electricity dues.
Conclusion
To sum up, after the amendment to the DRT and
SARFAESI Acts, claims of the Secured Creditors
exceeding Rs.1.00 lakh shall have priority over all other
claims including Sales Tax/VAT and other Government
dues (Subject to the decision of the Rajasthan High Court).
But, in respect of claims below Rs.1.00 lakh, Government
dues like Sales/VAT tax and Municipal tax dues excluding
the dues payable to the Income Tax authorities shall
prevail. Further, notwithstanding the above amendment,
the dues payable to the statutory agencies under welfare
legislation like EPF Act, ESI Act, Workmen’s
Compensation Act, 1963 etc. shall continue to prevail over
the dues of the Secured Creditors.
Where a borrower is a Company and if the same is under
liquidation, a Secured Creditor has to share the sale
proceeds of secured assets with workmen. Further, the
question of sharing of sale proceeds of the secured assets
of a Company with the workmen does not arise if the
company is not under liquidation.
Hence, a secured creditor may not be able to realise their
dues from the secured assets, despite being a secured
creditor, in view of the need to share sale proceeds of
secured assets by operation of law. Therefore, there is a
case for Secured Creditors to factor in these issues while
sanctioning credit facilities to the borrowers, especially
corporate borrowers and devise ways and means to
stipulate adequate securities.
About the Author
K S Hareesh Kumar is working as Chief
Manager (Law) in Union Bank of India.
His articles on ‘Section 49 of Indian
Partnership Act, 1932’ and ‘Winding up of
Companies under Companies Act, 2013',
Insolvency & Bankruptcy Code, 2016’ have
been published in the Journal
‘Management Account’, published by the Institute of Cost
Accountants of India, in May, 2017 and October, 2017 issues.
He can be reached at kshk.hareesh@gmail.com
The Indian Banker 47
 ARTICLE
Many years ago, if a person needed a loan for a car or
personal purpose, he had to go to a bank or similar
financial institution to get it. He had to apply and wait for
it to be approved. Banks usually approve or reject loan,
based on the applicant’s repayment abilities. A person was
judged depending on how much he made and what is his
financial situation was like.
Nowadays, when a person needs to borrow money, he can
turn to peer-to-peer lending and borrow money from
another person (individual).
In today’s networked economy, it is possible to run the
largest taxi service in the world without owning a single
cab, offer traveller’s accommodation in a million rooms
owned by others and broker billion worth of loans
between those who want to lend and those who need
to borrow.
What is Peer to Peer Lending?
Peer to Peer (P2P) lending is an alternative to traditional
bank lending. Lenders and borrowers interact with one
another in a particular website. In general, P2P lending is
crowdsourcing loans, which is about convincing other
people to come up with something.
Many P2P loans are unsecured personal loans, though
some of the largest amounts are lent to businesses. Secured
loans are sometimes offered by offering luxury assets such
as jewellery, watches, vintage cars, fine art, buildings,
aircraft and other business assets as collateral. They are
made to an individual or company. Other forms of P2P
lending include student loans, commercial and real estate
loans, payday loans, as well as secured business loans,
leasing, and factoring.
48 The Indian Banker
P2P Lending
N Gopala Krishna Murthy
The interest rates can be set by lenders who compete for
the lowest rate on the reverse auction model or fixed by the
intermediary company, on the basis of an analysis of the
borrower's credit. The lender's investment in the loan is not
normally protected by any government guarantee. On some
services, lenders mitigate the risk of bad debt by choosing
which borrowers to lend to and mitigate total risk by
diversifying their investments among different borrowers.
Other models involve the P2P lending company
maintaining a separate, ring-fenced fund, such as Rate
Setter's Provision Fund, which pays lenders back in the
event the borrower defaults, but the value of such provision
funds for lenders is subject to debate.
The lending intermediaries are for-profit businesses. They
generate revenue by collecting a one-time fee on funded
loans from borrowers and by assessing a loan servicing fee
to investors and / or borrowers (either a fixed amount
annually or a percentage of the loan amount). Compared to
stock markets, P2P lending tends to have both less volatility
and less liquidity.
P2P lending is a new concept in India. Online sites such as
www.Indialends.com, www.i2ifunding.com and Fintech
EarlySalary (a mobile app) have started operations allowing
the individuals to obtain loans or invest money through
P2P lending without the intervention of banks and
financial institutions.
Procedure followed for P2P lending
Let us take i2ifunding.com as an example. It is a P2P
lending marketplace where an individual can borrow money
at a desired rate of interest, and an investor can lend to
retail borrowers at interest rates up to 30 percent and get an
Vol VI No. 1 - August 2018

opportunity to earn high returns, earlier available only to
banks, NBFCs etc. For seamless operations, the entire
loan funding process is digitised and is transparent, quick
and easy.
Customer needs to register at the website to participate in
any transaction. Registration is free for all users. To register,
the customer has to fill in personal details and create a
login id. As part of the registration process, email id and
mobile number will be verified. Post successful registration,
the customer will be assigned a relationship manager, and
the customer will have access to more functionality. To
start financial transactions, customer needs to either create
a borrower or an investor account as per requirement.
Borrower account creation
To create a borrower account, the customer has to fill a
simple and easy online form regarding loan requirement,
personal details, employment history and financial details,
along with scanned self-attested copies of required
documents. Customer may also opt to have a co-borrower
which might be helpful in getting faster loans at better
rates. To increase chances of funding, the customer has to
fill in ‘optional’ fields as well.
Interest rate
The website helps the borrowers and the investors in
setting the interest rate. Using a proprietary Credit Score
Model, it recommends an interest rate for each loan based
on its credit risk. A borrower can borrow at an interest rate
which is higher than or equal to this rate.
Listing period
After registration by the interested lenders and borrowers,
the company will verify the credentials of the parties and
will display the list of active investors who are willing to
lend the money on the portal.
Post the loan
A borrower can post the loan at an interest rate higher than
or equal to the portal recommended interest rate. During
the listing period, the borrower will have the option to
increase the interest rate to provide higher returns to attract
investors. Once interest rate has been increased, the same
rate will be applicable to the investors who have already
made the commitment.
Investor account creation
To create an investor account, the customer has to fill a
simple and easy online form regarding investment
Vol VI No. 1 - August 2018
ARTICLE
requirement along with personal and employment details.
Customers have to submit the scanned self-attested copies
of required documents to complete KYC requirements and
then customers are ready to invest. After successful
creation of investors’ account, customer wallet will be
activated along with customer’s brief profile and
investment preference.
Invest in a loan
An investor can commit to lend to a single or multiple
borrowers. Before making the commitment, key
information of a borrower including his / her report
(covering detailed risk analysis) will be available.
Once a commitment has been made, the investor will have
access to further documents as uploaded by the borrower.
Any time before deal closure, the investor and the
borrower can interact and clear their doubts through the
portal messaging system.
Loan gets funded
To mitigate investment risks, a loan is funded by multiple
investors. All the investors for a particular loan will enjoy
the same interest rate to avoid any speculation and should
lead to the fair discovery of market-based assessment of
borrower's risk profile.
Physical verification and signing of a legal contract
Once a loan is closed by the borrower, the portal could
conduct physical verification of the borrower along with
matching the uploaded documents with hard copy / ID
proof. In case of any discrepancy, the transaction will be
cancelled along with severe penalty on the borrower, which
would include barring him / her for carrying out any new
transaction at the portal.
Investors will also be duly informed of the outcome of the
verification. Upon successful verification, the borrowers
and the investors will sign a loan agreement which is a
legally binding document, enforceable in the court of law.
Borrower receives funds
Once the loan has been closed, requisite documents have
been collected, the verification process has been
successfully completed, and the Loan Agreement has been
signed, investors are obligated to transfer the money to the
Nodal Escrow Account (non-interest bearing) for disbursal.
Money from Nodal Escrow account is transferred to the
borrower’s bank account on the next working day. Post this;
the borrower needs to update the status on the portal for
record keeping.
The Indian Banker 49
 ARTICLE
Table 1: Example charges for P2P lending services
Repayment of EMIs and loan closure certificate
The repayment schedule is provided to the borrower. Any
delay or default attracts severe penalty. The borrower may
also prepay the loan without any pre-payment charges.
Once total loan amount has been repaid as per the given
schedule, a loan closure certificate is issued to borrower.
EarlySalary App
Ashish Goyal and Akshay Malhotra, founders of
EarlySalary App, had studied situations of financial needs
of the salaried class who do not own credit cards and
cannot borrow funds from family, friends and relatives,
among thousands of young urban professionals, and came
up with a lending service that would meet emergency
requirements of employees.
EarlySalary App recently raised Series B funds of INR 1 bn
from investors such as Eight Roads Ventures, IDG
50 The Indian Banker
Ventures, DHFL over the last two years. EarlySalary has
emerged as one of the fastest growing fintech players in
the country with its cutting-edge technology platform and
is now among the market leaders in the real-time short-
term loan business.
Business model
The ‘EarlySalary’ mobile app claims to give cash loans and
salary advances of up to 50 percent of one’s monthly pay,
within 10 minutes. This is beneficial for borrowers who
have little or no credit score. The company claims to
leverage credit bureau ratings as well as social media
surrogates for risk assessments and machine learning
scorecards (the process of generating values based on trained
machine learning model after input of new data) for faster loans
approvals.
While the loan size varies between INR 8,000 and INR 2
lac, the most commonly borrowed amount is INR 20,000.
Vol VI No. 1 - August 2018

Borrowers end up paying about INR 9 per day as interest
for loans of about INR 10,000.
Going digital
The launch of ‘India-stack’, the move towards a cashless
economy and current government policies favour the
fintech sector. This will pave the way for greater innovation
and ultimately products that can change the way we deal
with money. In 2018 we can expect a digital angle to every
aspect of monetary transactions and a bid to make
transactions seamless for both borrowers and lenders.
What has also been noteworthy for this very nascent sector
has been the level of cooperation. Each startup may be a
competitor, but that has not stopped the sector from
getting together to come up with what is the best for the
sector. The P2P lenders have initiated talks to form an
association, and the aim is to not just jointly represent the
industry, but also to mutually cooperate to ensure borrower
and lender interests.
In addition to stipulating to the guidelines / norms
prescribed by RBI and the procedures followed by the
peers in P2P lending as discussed above, the following
suggestions can be considered for smooth and effective
implementation of P2P lending through an online platform
in banks.
Suggestions for implementation of P2P lending
by banks
• Comprehensive training should be given to every staff
member of the banks in the branch for implementation
of the P2P lending.
• Introduce a onetime campaign to enable all staff
members to know the basic features of P2P lending.
• Simple steps for administering the products should be
provided for easy access for all staff members and
should also be updated regularly.
• Publicity in electronic, print media and social media
platforms about the process and procedure involved in
P2P lending, be launched.
Vol VI No. 1 - August 2018
ARTICLE
Conclusion
Firstly, the P2P lending business is bound to see greater
interest and traction from lenders. With the real estate
market being subdued, economic uncertainty playing out in
the stock markets, and opaqueness around gold, we will see
people increasingly looking at alternate sources of finance
as an investment tool.
P2P lending will emerge as the most prominent alternative
investment opportunity.
On the borrower side, things are grim. This is particularly
true for SMEs who have been squeezed hard by
demonetisation and loans from banks have come to almost
a screeching halt. SMEs and MSMEs will look at alternative
sources of funds to fuel growth and would be the biggest
beneficiary of P2P lending due to faster and cheaper access
to credit. It is uncannily difficult to raise loans from a bank,
and it has become tougher. Last year, 34 percent of small
borrowers used this avenue to expand and fund their
businesses, creating more jobs and adding to the growth of
our economy. We expect this part of borrowing to grow
considerably for the entire P2P sector, both in terms of
percentage and volume.
One grey area for the sector has been the lack of guidelines
and regulatory provisions. Last year the Reserve Bank of
India (RBI) had put out a consultation paper on P2P
lending in India. The paper proposes NBFC status for P2P
lending platforms and is largely in line with what the sector
has been asking for. Accordingly, P2P lending platform can
be introduced in the public sector as well as private sector
banks to enhance the customer satisfaction, to meet the day
to day competition and also to go along with the present
trend of digitalisation.
About the Author
N Gopala Krishna Murthy is working as
Chief Manager and Faculty, State Bank
Insitute of Innovation and Technology
(SBIIT), Hyderabad since March 2017.
Having joined State Bank of India in 1986,
Murthy has worked as CM Admin, Branch
Manager and CSO in SBI.
His educational qualifications include: BSc, CAIIB and MBA
(Banking & Finance). He has also to his credit Certifications on
Digital Banking, AML/KYC and BCSBI from Indian Institute of
banking and Finance (IIBF).
He can be reached at murthy.ngk@sbi.co.in or
gknyayapathi@gmail.com
The Indian Banker 51
 ARTICLE

Inspection of Securities
An Important Tool of Risk Mitigation
B M Saini

Introduction gives a clear picture of the borrower but also enhances the
knowledge level of the banker to deal with different types
Monitoring of credit accounts has become a challenge to of customers.
present bankers. In today’s banking scenario slippage of
account to NPA and ultimately loss is causing concern. Various kinds of inspection 
NPAs of Indian banking industry were nearly INR 9.5 lac
crores by the end of March, 2018 with stressed assets There are various kinds of inspection to be carried out.
reaching INR 11.5 lac crores. This threat is not only faced These are:
by PSBs, but private banks are also sailing in the same boat.
There are many ways and means to monitor a credit • Pre-sanction inspection
account. One of these is ‘Inspection of Securities’. Hence,
inspection of the assets created out of the bank finance • Post-sanction inspection
(primary securities) and also the other assets offered as
collateral securities, is very much essential and important. • During / post disbursement
All the banks stipulate a condition while sanctioning the
advance in the sanction advice that ‘the bank shall have the • Routine periodical inspection
right to examine, at all times during the currency of the advance,
books of accounts of the firm to whom advance is given and to have • Inspection by various auditors
all the assets charged to the bank in a periodical intervals either
through its officers or by outside agencies’. So, inspection is an • Joint inspection under consortium / multiple banking
essential part of credit monitoring. In this article, we will arrangements
discuss various aspects of inspection such as the utility of
inspection, types of inspection, how the inspection is to be • One time inspection by a senior executive of the bank
done and by whom.
• Surprise inspection
Why inspection?
Though post-sanction inspection of securities and regular
Inspection is an effective credit monitoring tool and has to inspection at the time of renewal are also important
be used properly. Banker has to ensure that the assets are pre-sanction inspection helps us to decide whether we
created out of bank finance as envisaged and the assets are should go for a further course of action or not for this
well maintained. He has to confirm periodically that these particular customer.
assets are worth for continuing as security. Spot inspection
helps to have firsthand knowledge of the business unit on Who shall inspect?
the whole apart from the maintenance of the security. It
will give a good idea of the borrower and his unit and how Normally, inspection is either carried out by the bank’s
his business is going on. Periodical inspection not only branch manager or credit officer. In big projects, technical

52 The Indian Banker Vol VI No. 1 - August 2018


officer or the industry officer from the controlling office of
the bank may also inspect the securities. Following are
other officers who may also inspect the securities:
1. Internal Audit Officers of the bank
2. Stock Auditors, as and where applicable
3. Statutory Auditors
4. RBI Auditors
5. Joint inspection under consortium multiple banking
6. Government officials along with Bank officials in
subsidy cases.
Now, the question arises which assets are to be inspected?
Those assets are to be inspected which are charged to the
bank as securities, and these securities can be primary or
collateral securities, which include:
• Fixed Assets: Land and Building, Plant and Machinery
(including vehicles)
• Current Assets: All inventories hypothecated and
pledged, book debts and receivables
• Books and records
How to inspect different securities
Land
It can be an agricultural land or industrial or residential.
Examine location details like survey number and
boundaries. The details given in the valuation report and
the legal opinion like the boundary details are to be cross-
verified and discrepancy if any has to be examined.
Ownership of the land is to be verified. Who is the
ultimate owner of the property? If minor has an interest in
the land, courts’ permission is to be obtained. If the land is
owned by the Trust, whether the Trust deed permits the
creation of the EM (Equitable Mortgage)? If the land is
owned by a company, while creating EM, suitable board
resolution is to be obtained and charges to be registered
with ROC (Registrar of Companies), within the stipulated
period. It is to be confirmed that the Memorandum and
Articles of Association permit the mortgage of the
company’s land. Further, we have to see that whether the
property has been revalued or not? Is the value shown by
the valuer is in the line of the proper market rate? Whether
the property in question is easily marketable or not?
Vol VI No. 1 - August 2018
ARTICLE
Building
In banks, about 60 percent of properties are in the shape
of building only. While inspecting the building, the
following points are to be verified:
• The type of construction of the building and the
quality of construction. The quality of construction
should be in line with the cost of construction
envisaged in the project cost based on which loan was
sanctioned.
• Banker while inspecting the property should verify that
construction of the building is as per the plan approved
by the local body. Civil construction deviating from the
approved plan shall invite trouble at the later stage.
• Confirm that Bank’s name board is prominently
displayed in the building.
• During the periodical inspection, the maintenance of
the land and building is to be looked into. Normally,
collateral security is to be inspected once in a year by
the bank officials.
• The property which has been already mortgaged or is
to be mortgaged should be insured adequately.
• The building should have free accessibility.
The relevance of inspection of properties before
pre-sanction of the loan will become clear from the
following example:
M/s Manohar & Company was a partnership firm having
three partners. The firm approached Delhi Cooperative
Bank Limited for working capital credit facility of INR 55
lacs for a newly set up computer monitor manufacturing
unit. Apart from the primary securities of inventories, the
firm had also offered collateral security in the form of
mortgage of land and building owned by one of the
partners, located in an urban area. The land and factory
building could not be offered as collateral security to the
bank as it was already charged to a financial institution, for
the term loan which was availed for acquiring fixed assets.
It was contended by the partner said that the value of the
property offered as collateral security was worth INR 1.25
crores. Latest valuation report was also produced along
with the search report. Considering the value of properties
in the city and the background of the promoters, the
proposal was acceptable to the branch.
However, when the proposal was put up to the higher
office for approval, the regional manager asked one of his
senior officials in his office to have a look on the property
The Indian Banker 53
 ARTICLE
and submit his report. Accordingly, the officer inspected
the property and submitted his report. The report inter alia
reads as under:
‘The property in question belongs to the managing partner of the
firm. All the information about the extent, location and structures are
correct. However, as this property is adjacent to a crematorium, the
marketability of the property may be a problem. In any eventuality,
the property in question may not fetch half of the amount valued.’
The regional manager accordingly advised the branch that
the party may be asked to give alternative collateral security
of good means.
Plant and machinery
Inspection of plant and machinery is very much essential
after disbursement for the purchase of the plant and
machinery. Following points may be kept in mind while
checking the same:
i) Whether project implementation is as per the given
schedule?
ii) Installation of the machinery.
iii) The machinery installed is of the same quality and
specifications as per the invoice / projection given at
the time of sanction.
iv) The machinery is in working condition.
Undue and unreported delay in project implementation,
installation of sub-standard machinery contrary to the
approved quotations etc are warning signals which should
be discussed. Installation of low-quality machinery can
result in siphoning the funds and shows borrower is not
serious in the venture. This will also result in a frequent
breakdown in plant / machinery affecting production
schedule.
Further, during the periodical inspection further points
should be taken into consideration:
• Whether the machinery is in regular working condition?
• Whether there has been a frequent breakdown of
machinery?
• How the plant and machinery are maintained?
• Is the capacity utilisation of the machinery in line with
the projection?
• Availability of power and other essential utilities.
54 The Indian Banker
Vehicles
• Confirm the chassis number / engine number and tally
with the records of the bank.
• Registration Certificate (RC) and the related license,
permit and certificate of fitness, if any, must be verified
at the time of inspection.
• General condition of the vehicle and maintenance.
• While examining the RC, confirm that hypothecation
entry is made. Nowadays branch can check the same
from ‘VAHAN’ app of the government.
• Confirm that the insurance is up to date.
Godown (Stocks under pledge)
The cash credit facility using pledge of stocks though
not common, but is still in vogue. In some banks, this is
known as the key cash credit facility. Under pledge facility,
the key of the lock of the godown will be in the custody
of the bank.
During Inspection of such godowns the following points
are to be noted:
• Location and construction of the godown.
• Godown is suitable for the goods stored in it.
• Nature of goods and the orderliness of storage of the
stocks.
• Other pre-requisites like security arrangement, door,
roof, flooring, windows, etc.
• Arrangements for protection from natural calamities.
• Free accessibility.
• Insurance policy details including correct address.
• Rent receipt for rented godown.
• Bank’s name board to be displayed both inside and
outside the godown. It is advisable to get the bank’s
name board painted on the wall / doors on the
godown.
Books and records
To know the actual position of stocks and cash, books and
records are to be verified during the inspection. If the
Vol VI No. 1 - August 2018
Vol VI No. 1 - August 2018 The Indian Banker 55
 ARTICLE
stocks in the godowns are monitored by software, that is to
be verified. The inspecting official has to verify and
confirm proper records / bin cards are maintained, and
stock records are updated periodically. Whether the unit has
an efficient and centralised purchasing / sales department?
Reconciliation of physical stocks with the stock register
and correlating it with the stocks declared in the stock
statement submitted by the client has to be done.
Various registers like, Stock Register, Sales Register,
Purchase Register, Taxes Register, rent receipts of
godowns, etc are to be verified. Further fixed assets register
and inspection report by regulatory authorities like labour
department, PF department and pollution control
department to be seen carefully.
Inspection reports of regulatory bodies and validity of
licenses and permits are very important. If the customer
does not adhere to the regulatory guidelines of bodies like
the pollution control board they may initiate direct action
against him.
Inspection of NPA accounts
Nowadays, as per guidelines, inspection of securities is a
must once an account has become NPA. Full details of
prime and collateral securities are incorporated in the NPA
returns submitted to concerned higher officers to decide
further course of action by the bank. If sufficient securities
are there, the bank would prefer the SARFAESI Act. After
taking possession of properties normally, the bank tries to
sell out the same. At times, it becomes difficult to sell out
the properties due to various technical and other reasons.
In such an eventuality, timely inspection of such properties
is very much essential.
Generally, bankers ignore inspection of securities in NPA
accounts and in accounts where legal action is being
initiated. There have been instances where secured assets
could not be identified or have been wrongly identified as
leading to various legal tangles subsequently. When
recovery actions are to be initiated under SARFAESI Act
or after DRT proceedings, identification of property
becomes difficult.
General observations
After inspection, the official must sit in the unit for a while
and make a general observation on the unit, its functioning
and the surrounding. In a classroom discussion during
training one participant was sharing his experience of
noting the calendar of another bank hanging in the
premises of the borrower which was not there during his
last inspection. After returning to office, he enquired from
56 The Indian Banker
the concerned bank and came to know that borrower has
availed some credit facilities from that bank also. Hence,
there are some small things that can be taken into
consideration for a 360-degree view of the borrower.
Your observation can span the following areas:
• Whether there is something wrong with the functioning
of the unit?
• Can you see any wrong signals?
• Any change in the attitude and behaviour of the
borrower?
• Is he trying to evade your enquires?
• Is he trying to change the discussion on the account by
talking about unrelated topics like politics or climate or
religion?
• Is he hurrying to wind up the inspection?
• Whether key officials have been changed recently?
• Have you noticed any labour problem?
• Is there an abnormal increase in sales or purchases?
• Is there any drastic downward trend in debtors and
creditors?
• Is there any downward trend in the profit?
• Is there any litigation against the borrower pending?
Continued on page 58........................
About the Author
B M Saini is currently working as Chief
Manager (Faculty) at Union Bank of India,
Staff Training Centre, Lucknow.
He joined the Bank in 1984 in clerical
cadre and has worked in Staff, Enquiry Cell,
Advances and in CBS team of the Bank. He
has also worked as Branch Head of Large
Branch. Presently, his areas are Retail Banking and Marketing,
Credit Monitoring and HR. His educational qualifications are B
Com, CAIIB- I.
His articles have been published in various magazines, latest
in Banking and Finance July, 2017 issue.
He can be reached at bahadur.saini@unionbankofindia.com
Vol VI No. 1 - August 2018

Publisher: Cambridge University Press, 4843/24, 2nd Floor, Ansari Road, Daryaganj, Delhi- 220003.
Edition: 2016
Pages: 360
Dr Arindam Bandyopadhyaya has been working with the
National Institute of Bank Management for several years.
Though not a banker himself, he has a deeper
understanding of banks and banking as he has trained
several bankers in credit risk management and also worked
with some banks on consultancy assignments. He has
written extensively on credit risk related areas, and this
complete book from him would definitely be considered a
welcome addition to the literature in this area. Its
importance is further heightened as banks are currently
coping with acute asset quality problems and the
heightened risk levels are reflected in the high level of loan
loss provisions and also loan write-offs made by them.
The book is a textbook on credit risk management. In
recent times risk management practices have changed
thoroughly due to policy convergence initiated by the Bank
for International Settlements, Basel. The book describes
the process a lending entity would need to chart to develop
credit risk measurement and management system based on
its own (internal) rating.
The advanced approaches prescribed by Basel Committee
gave importance to internal credit rating (as against
external rating provided by rating agencies) because banks
are also putting their money based on their ratings!
Besides, banks have a relationship with the borrower and
hence most suitable to monitor him / her. Large banks,
where institutional memory is systematically retained
and recalled when required, also bring in expertise in
sectors and industries. Dr Bandyopadhyaya, the author of
this book, has run several programmes on Basel
recommended risk management systems. Unsurprisingly,
his experience and understanding are reflected in the
contents of the book.
Vol VI No. 1 - August 2018
BOOK REVIEW
Book Review
Managing Portfolio Credit Risk in Banks
Arindam Bandyopadhyaya
The appropriateness of complex risk measurement
methods which are data intensive is being questioned since
the Global Financial crisis that hit the big US Banks and
FIs whose reverberations were felt in several countries. The
latest thinking is to follow simple approaches which are
difficult to misinterpret and misuse. The 2008 crisis has
disrupted the adoption of advanced risk measurement
approaches whether credit risk, market risk or operational
risk. The Basel Committee now highlights simple, easy to
compute risk measures.
As the Indian banks are coping with a steady deterioration
in the quality of their loan portfolio, sophisticated
approaches of risk measurement are not attracting much
attention from banks or the bank regulator. It is, therefore,
possible that some would wrongly think that the advanced
approaches are no longer relevant for banks as the Basel
Committee on Bank Supervision (BCBS) is highlighting
simple methods.
Though BCBS has, in recent years, exhibited its preference
for simplicity in risk measurement another simultaneous
development has highlighted the importance of internal
credit measurement. Like financial regulators, even
accountants aim to have international harmonisation of
accounting policies. Towards this end, India, along with
other G-20 countries, has committed to adopting
International Financial Reporting Standards (IFRS). Large
listed non-financial corporates have already shifted to these
standards. Banks were set to implement these standards
from April 1, 2018. The date of implementation has
recently been deferred by one year by the Reserve Bank of
India. The new standards provide sufficient flexibility for
banks in the valuation of assets to reflect interbank
differences in terms of business models, portfolio
The Indian Banker 57
 BOOK REVIEW
composition, and market liquidity. Such a shift will
ultimately benefit banks as the adoption of IFRS will
enable them to get easier access to international investors,
but the underlying challenges are daunting. It is in this
context the book penned by Dr Bandyopadhyay will be
useful to bankers even if advanced Basel approaches are no
longer stressed.
The book is divided into eight chapters. The introductory
chapter describes major risk drivers, the importance of
managing credit risk and its significant deterministic
influence on bank performance and solvency. Subsequent
chapters develop different relevant themes in building
internal models for credit risk and its validation. The book
also deals with the importance of adopting a portfolio
approach to credit risk by focusing on risk concentrations
and correlations. Chapters 7 and 8 are focused on capital
requirements in its both regulatory and economic
dimensions. As the author states, this book is specially
designed ‘to enable the banks to prepare for migration to
Basel Internal Rating Based approach’. However, as argued
above the book is relevant even in the context of migration
to IFRS standards; particularly IFRS 9 that deals with
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.........................Continued from page 56
On noticing the above, the banker should discuss the
matter with the borrower for a proper explanation to
decide further course of action. If the limit is due for
renewal, proper papers should be called for.
‘Seeing is believing’ and therein lies the utility of
inspection. Normally, primary securities are to be inspected
at least once in a quarter and collateral securities at least
once in a year. Inspection is to be done in good faith and
58 The Indian Banker
valuation of Financial Assets. Indian banks have a large
quantum of loans on their books which are not listed /
traded. Valuation of such loans needs historical
information on loan defaults and recoveries; precisely the
aspects the book deals with it.
Perhaps in the second edition of this book, the author
could consider the inclusion of a new chapter highlighting
the links factors such as PD, EAD, LGD etc have with the
valuation of loans. This would not only increase the
contemporary importance and relevance of this book for
Indian banks and bankers even in a post IRB world but
also make it more obvious!
Reviewed by 
M K Datar
Retired bank official and
Former senior advisor
Indian Banks’ Association
without negligence. It is an important tool in credit
monitoring. If any irregularities are found out, immediate
corrective steps are to be initiated and properly reported to
higher authorities. In a nutshell, any security should have
four essential qualities that the banker puts in the acronym
‘MAST’ which stand for Marketability, Ascertainability,
Safety and Transferability. During the inspection, the bank
officials have to ensure that these four quality points are
intact and the interest of the bank is not jeopardised. If the
above points are kept in mind, risk can be minimised.
Inspection of securities plays a very vital role in advances.
Vol VI No. 1 - August 2018
 {hÝXr
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nwZag§aMZm gpå‘{bV hmo gH$Vo h¢.
a) CYmaH$Vm© g§ñWmAm| Ûmam g^r A{VXo` Ho$ ^wJVmZ hoVw ImVm| H$mo
{Z`{‘V H$aZm
b) AÝ` g§ñWmAm| / {ZdoeH$m| H$mo EŠñnmoOa {~H«$s H$aZm
c) ñdm{‘Ëd ‘| n[adV©Z AWdm
d) nwZag§aMZm
Vol VI No. 1 - AJñV 2018
boI
VWm{n g‘mYmZ `moOZm, Ho$db Cn`w©º$ C{„pIV H$m`©dmB© VH$ hr gr{‘V
Zht hmoZr Mm{hE ~pëH$ CYmaH$Vm© Ho$ X~mdJ«ñV ImVm| Ho$ g‘mYmZ hoVw
F$UXmVm Omo ^r AÝ` H$m`©dmB©, Omo dh Cn`wº$ g‘PVm h¡, Bg‘| em{‘b
H$a gH$Vm h¡.
3) nwZag§aMZm H$mo EH$ A{Y{Z`‘ Ho$ ê$n ‘| ^r n[a^m{fV {H$`m J`m h¡
{Og‘| F$UXmVm Am{W©H$ `m {d{YH$ H$maUm| go, CYmaH$Vm© H$mo CgHo$
{dÎmr` g§H$Q> ‘| [a`m`V Xo gH$Vm h¡. nwZag§aMZm gm‘mÝ` ê$n go
{ZåZ{bpIV VarHo$ go H$s Om gH$Vr h¡.
a) A{J«‘ / à{V^y{V`m| ‘| g§emoYZ, {Og‘| MwH$m¡Vr Ad{Y ‘| n[adV©Z
/ MwH$m¡Vr am{e / {H$íV H$s am{e / ã`mO Xa O¡go AÝ` ~mVm| H$mo
gpå‘{bV {H$`m Om gH$Vm h¡.
b) H«o${S>Q> gw{dYmAm| H$m {dñVmaU.
c) A{V[aº$ H«o${S>Q> gw{dYm H$s ñdrH¥${V.
d) {dÚ‘mZ H«o${S>Q> gr‘m ‘| d¥{Õ.
e) Ohm§ ^wJVmZ `m {ZnQ>mZ am{e Ho$ {bE g‘` VrZ ‘mh go A{YH$
hmo, dhm± {ZnQ>mZ g‘Pm¡Vo go {H$`m OmE.
4) {H$Ýht {Z`‘m| Ed§ eVm] ‘| H$moB© ~Xbmd Zht {H$`m J`m hmo, Vmo ^r
F$UXmVmAm| H$mo g‘mYmZ `moOZm H$m ñnï> ê$n go àboIZ gw{Z{üV
H$aZm hmoJm.
J) g‘mYmZ `moOZm (Ama.nr.) hoVw H$m`m©Ýd`Z eV]
1) Eogr CYmaH$Vm© g§ñWmE§ {OZH$m F$U EŠñnmoOa F$UXmVmAm| Ho$ à{V Omar
ahVm h¡, Ho$ g§~§Y ‘| g‘mYmZ `moOZm H$mo V^r H$m`m©pÝdV ‘mZm OmEJm
O~ dh {ZåZ{bpIV eVm] Ho$ AYrZ hmo:
a) CYmaH$Vm© g§ñWm A~ {H$gr ^r F$U XmVm H$s MyH$H$Vm© Zht h¡.
b) `{X g‘mYmZ `moOZm ‘| nwZag§aMZm em{‘b h¡ V~ g^r F$UXmVm
g^r g§~pÝYV XñVmdoµO àñVwV H$a|Jo, {Og‘| F$UXmVmAm| Am¡a
CYmaH$Vm© g§ñWm Ho$ ~rM Amdí`H$ H$amam| H$m {ZînmXZ, à{V^y{V
à^ma H$m g¥OZ Am¡a à{V^y{V`m| H$s nyU©Vm hmoJr.
c) ZB© ny§Or Am¡a / `m ‘m¡OyXm F$U H$s eVm] ‘| n[adV©Z g^r
F$UXmVmAm| Am¡a CYmaH$Vm© g§ñWm H$s ~{h`m| ‘| ì`dpñWV ê$n go
n[ab{jV hmo.
d) ~‹S>o ImVm| (é 100 H$amo‹S> `m A{YH$) ‘|, Ohm§ Ama.nr. ‘|
nwZag§aMZm / ñdm{‘Ëd ‘| n[adV©Z em{‘b h¡, Bg à`moOZ Ho$ {bE
{X B§{S>¶Z ~¢H$a 61
 boI
dhm± ^maVr` [aOd© ~¢H$ Ûmam {d{Z{X©ï> ê$n go àm{YH¥$V H«o${S>Q> ao{Q>§J
EO|{g`m| (gr.Ama.E.) Ûmam Ad{eï> F$U H$m ñdV§Ì F$U
‘yë`m§H$Z (AmB©.gr.B©.) Ano{jV hmoJm.
e) é 500 H$amo‹S> `m A{YH$ Ho$ ‘yë`m§H$Z Ho$ {bE Xmo AmB©.gr.B©. H$s
Amdí`H$Vm hmoJr, O~{H$ AÝ` g^r ImVm| Ho$ ‘yë`m§H$Z Ho$ {bE
EH$ AmB©.gr.B©. n`m©á hmoJm. AmB©.gr.B©. {ZåZmZwgma hmoJr:
i) F$U XmVmAm| Ûmam gr.Ama.E. H$mo grYo {Z`wº$ {H$`m OmEJm VWm
Bg àH$ma Ho$ {ZYm©aU Ho$ {bE à^ma H$m ^wJVmZ F$U XmVmAm| Ûmam
ñd`§ dhZ {H$`m OmEJm.
ii) `{X F$U XmVm Ano{jV gr.Ama.E. go A{YH$ g§»`m ‘|
AmB©.gr.B©. àmá H$aVo h¢, Vmo Eogo g^r AmB©.gr.B©. {dMma
H$m`m©Ýd{`V {H$E OmZo dmbo Ama.nr. Ho$ {bE, ~ohVa `m Ama.nr.4
ñVa Ho$ hm|Jo. AmB©.gr.B©. àVrH$ H$s ì`m»`m {ZåZmZwgma H$s JB© h¡:
K) {ddoH$nyU© ‘mZX§S>
1. Ama.nr. H$mo A§{V‘ ê$n {X`o OmZo Am¡a H$m`m©pÝdV {H$E OmZo H$s Ad{Y
Ho$ Xm¡amZ, gm‘mÝ` AmpñV dJuH$aU ‘mZX§S> bmJy hmoVo ah|Jo.
2. {OZ CYmaH$Vm© g§ñWmAm| Ho$ {déÕ AmB©.~r.gr. Ho$ VhV {Xdm{b`m
AmdoXZ {H$E JE h¢, CZHo$ g§~§Y ‘| àmdYmZ CZHo$ AmpñV dJuH$aU Ho$
AZwgma {H$`m OmEJm, Omo Am` {ZYm©aU, AmpñV dJuH$aU Am¡a
àmdYmZrH$aU na {ddoH$nyU© ‘mZX§S>m| Ho$ AZwgma hmoJm.
3. ^maVr` [a‹Od© ~¢H$ Ûmam AbJ go Omar {H$E OmZo dmbo {dñV¥V
{Xem{ZXo©em| Ho$ AZwgma ~¢H$ H$m`m©pÝdV H$s JB© g‘mYmZ `moOZmAm| Ho$
g§~§Y ‘| AnZo {dÎmr` {ddaU ‘|, boIm na {Q>ßnUr Ho$ A§VJ©V C{MV
àH$Q>rH$aU H$a|Jo.
4. {OZ n[a`moOZmAm| Ho$ H$m`m©Ýd`Z ‘| dm{UpÁ`H$ n[aMmbZ Ho$ Ama§^ H$s
{V{W (S>r.gr.gr.Amo.) H$m AñWJZ em{‘b h¡, CZH$s nwZag§aMZm Am`
62 {X B§{S>¶Z ~¢H$a
AmB©.~r.gr. Ho$ A§VJ©V dmbo ~‹S>o ImVm| Ho$ {bE g‘` gr‘mE
{ZYm©aU, AmpñV dJuH$aU Am¡a A{J«‘m| go g§~pÝYV àmdYm{ZH$aU na
{ddoH$nyU© ‘mZX§S> Ho$ {Xem{ZXo©em| Ho$ AZwgma hmoJr.
{H$VZm H$maJa?
{Xdmbm Ed§ emoYZ Aj‘Vm H$moS>, 2016 (AmB©.~r.gr.) EH$ à{H«$`m CÝ‘wI H$moS>
h¡ Omo n[ag‘mnZ go nhbo g‘mYmZ H$m {dH$ën VbmeZo H$m Adga XoVm h¡. EH$
Am¡a AXmbV Ho$ ~mha g‘Pm¡Vo H$m à{H«$`m CÝ‘wI {Z`m‘H$ T>m§Mm {ZaW©H$ gm{~V
hþAm h¡. Bg{bE Xmo AbJ-AbJ à{H«$`m CÝ‘wI T>m§Mo H$s OJh Xmo nyaH$ à{H«$`m
CÝ‘wI T>m§Mo Á`mXm bm^H$mar gm{~V hm|Jo Amo EH$ Xygao Ho$ gmW g§aopIV hm|.
EH$, MyH$ Ho$ ~mX AXmbV Ho$ ~mha g‘Pm¡Vo H$m {dH$ën C{MV Ad{Y Ho$ A§Xa
ImoOZo ‘| ‘XX H$aVm h¡ Am¡a Xygam AmB©.~r.gr. Ho$ A§VJ©V {Z`m‘H$ à{H«$`m ewê$
H$aZo H$m {Xem XoVm h¡. Z`m T>m§Mm n[aUm‘ CÝ‘wI h¡ Omo ~¢H$m| H$mo à{H«$`m {ZYm©aU
H$aZo ‘| VWm nwZJ©R>Z `moOZm H$s ê$naoIm V¡`ma H$aZo ‘| ‘hËdnyU© bMrbmnZ
àXmZ H$aVm h¡.
^maV ‘|, ~¢H$ F$U Ho$ ~‹S>o-~‹S>o ImVm| ‘| F$U AZw~§Y {Za§Va n{dÌVm Imo ahm h¡.
~¢H$m| ‘| g‘` na ^wJVmZ ~hþV ‘hËdnyU© h¡ Š`m|{H$ ~¢{H§$J bmBgoÝg Ho$ ~b na
BÝh| Agr{‘V Ag§nm{œH$ {Z{Y CnbãY hmo OmVr h¡. MyH$ H$mo gmám{hH$ [anmoQ>©
H$aZm A{Zdm`© h¡ {H$ÝVw J¡a {Zñnm{XV AmpñV`m| Ho$ dJuH$aU na 90 {XZm| Ho$
{nN>bm ~H$m`m H$m ‘mnX§S> H$m`‘ ahoJm.
g‘mYmZ `moOZm (Ama.nr.) H$m H$m`m©Ýd`Z F$UXmVmAm| Ûmam EH$b `m g§`wº$
VarHo$ go hmo gH$Vm h¡. N>moQ>o F$Ur {OZHo$ J«mhH$m| Ho$ Ûmam ^wJVmZ Zht {‘bZo H$s
pñW{V ‘| {Z{Y CnbãY H$aZo H$m gmYZ Zht h¡, Z`m T>m§Mm EH$ AndmX h¡ .
boIH$$ n[aM¶
Pushkar Kumar Sinha
Designation: Chief Manager (Faculty),
Union Bank of India, Staff Training Centre,
Qualification: M. Tech, Diploma in
Management, CAIIB
Banking experience: 17 years
email id- pushkarksinha@unionbankofindia.com
Vol VI No. 1 - AJñV 2018
Vol VI No. 1 - AJñV 2018 {X B§{S>¶Z ~¢H$a 63
 boI
15 AJñV 1947 H$mo Xoe amOZr{VH$ Vm¡a na AmOmX hmo J`m bo{H$Z Xoe Ho$
bmImo H$amo‹S>m| bmoJm| Ho$ {bE Am{W©H$ AmOmXr H$s OÔmoOhX AmO ^r Omar h¡.
~¢{H§$J Am¡a {dÎmr` godmAm| Ho$ Am¡nMm[aH$ V§Ì go A~ VH$ ~mha, `o bmoJ AmO
^r `m Vmo gmhÿH$mam| Ho$ M§Jwb ‘| ’§$gH$a H$O© Ho$ ‘H$‹S>Omb ‘| Vm{µO§XJr ’§$go ah
OmVo h¢ `m {’$a Á`mXm bm^ Ho$ bmbM ‘| J¡aH$mZyZr `moOZmAm| ‘| ’§$gH$a AnZr
ngrZo H$s Jm‹T>r H$‘mB© J§dm ~¡R>Vo h¢. ~oeH$ ^maVr` [a‹Od© ~¢H$ AnZo nyd© Jd©Za
S>m° gr a§JmamOZ H$s AÜ`jVm ‘| 2008 ‘| J{R>V "{dÎmro` g‘mdoeZ g{‘{V' H$s
AZwe§gmAm| Ho$ AZwgaU ‘| d§{MVm| H$mo Am¡nMm[aH$ ~¢H$ V§Ì ‘| bmZo Ho$ à`mgm| ‘|
OwQ>m h¡ Am¡a AmO àË`oH$ "amÁ`-ñVar` ~¢H$g© g{‘{V' H$s ~¡R>H$ ‘| Bg na
{Z`{‘V ê$n go JhZ MMm© hmoVr h¡. Xoe H$m erf© H¥${f Am¡a J«m‘rU {dH$mg ~¢H$-
Zm~mS©> ^r Bg {Xem ‘| [a‹Od© ~¢H$ Ho$ gmW H§$Ym go H§$Ym {‘bmH$a Mb ahm h¡.
BVZm hr Zht, ~¢{H§$J godmAm| VH$ bmoJm| H$s nhþ§M ~‹T>mZo Ho$ ‘‹H$gX go ‘moXr
gaH$ma Zo ‘w{h‘ MbmB© Am¡a EH$ gmb ‘| hr "àYmZ‘§Ìr OZYZ `moOZm' Ho$ VhV
H$ar~ 17 H$am‹oS> ZE ~¢H$ ImVo Iwb MwHo$ h§¡ {OZ‘| 12,500 H$am‹oS> én`o go Á`mXm
am{e O‘m hmo MwH$s h¡.
`wÕñVa na {H$E Om aho g‘doV à`mgm| Ho$ ~mdOyX dmñV{dH$Vm `h h¡ {H$ AmO
^r h‘mao 19% Xoedm{g`m| H$m ~¢H$ ‘| ImVm Zht h¡. `{X ImVm Iwb ^r J`m Vmo
A{ejm Am¡a AkmZVm Ho$ JV© ‘| Sy>~o Jm§ddm{g`m| H$mo BVZr OmZH$mar Zht {H$ do
n¡go O‘m H$admZo Am¡a {ZH$bdmZo Ho$ {bE ’$m°‘© hr ^a gH|$. 29 ‘| go Ho$db 2
amÁ`$ Am¡a 7 `yQ>r 100% {dÎmro` g‘mdoeZ H$m bú` àmá H$a nmE h¢. ‹Jm¡aVb~
h¡ {H$ ^maV ‘| ~¢{H§$J Am¡a AÝ` {dÎmr` godmAm| H$s nhþ§M AmpIa BVZr H$‘ Š`m|
h¡? Odm~ 2013 ‘| 18 go 64 gmb H$s C‘« Ho$ bmoJm| Ho$ ~rM H$s JB© ñQ>S>r ‘|
{‘b gH$Vm h¡ {OgHo$ ‘wVm{~H$ {dÎmr` gmjaVm `mZr ~¢{H§$J, ~MV Am¡a {Zdoe
H$s OmZH$mar Ho$ ‘m‘bo ‘| ^maV E{e`m-n¡{g{’$H$ BbmHo$ Ho$ 16 Xoem| ‘| AmpIar
nm`XmZ na h¡, AWm©V ’$mBZ|{e`b {bQ>aogr H$s H$‘r ~¢{H§$J godmAm| Ho$ {dñVma
H$s amh ‘| EH$ ~‹S>m amo‹S>m h¡. {bhmµOm, {dÎmr` gmjaVm `mZr {dÎm H$mo g‘PZo H$s
j‘Vm AmO Ho$ Xm¡a ‘| ~hþV Ah{‘`V aIVr h¡ Vm{H$ Am‘OZ AnZo gr{‘V
{dÎmr` g§gmYZm| H$m ghr à~§YZ H$aZo Ho$ gmW-gmW AnZo {dÎmr` ^{dî` H$mo
~ohVa ~Zm gH|$. Ohm± Zm°do©, ñdrS>Z Am¡a So>Z‘mH©$ O¡go Xoem| ‘| 71%, AÝ`
`wamonr` Xoem| ‘| 52%, `hm§ VH$ {H$ {~«Šg Xoem| ‘| ^r 28% {dÎmr` gmjaVm h¡
dht ^maV ‘| Ho$db 24% bmoJ {dÎmr¶ Ñ{ï> go gmja h¢.
64 {X B§{S>¶Z ~¢H$a
{dÎmr` gmjaVm go Jm§dm| Ho$
{dH$mg H$s amh ~ZoJr AmgmZ
ԤOwbm dmYdm
AmBE, µOam OmZ|- `h {dÎmr` gmjaVm h¡ Š`m? Am{W©H$ gh`moJ Ed§ {dH$mg
g§JR>Z (OECD) H$s n[a^mfm Ho$ AZwgma, EH$ Eogr à{H«$`m {OgHo$ Ûmam
{dÎmr` Cn^moº$m / {ZdoeH$Vm© {dÎmr` CËnmXm|, AdYmaUmAm| Ed§ OmopI‘m| Ho$
~mao ‘| AnZr g‘P H$mo g‘wÞV H$aVo h¢ Am¡a OmZH$mar, {ZXo©e Ed§ / AWdm
dñVw{Zð> gwPmd Ho$ O[aE XjVm Ed§ AmË‘{dœmg H$m {dH$mg H$aVo h¢ Omo CÝh|
{dÎmr` OmopI‘m| VWm Adgam| Ho$ ~mao ‘| A{YH$ OmJê$H$ ~ZmVo h¢; BZH$s ‘XX
go do AnZo {dH$ënm| H$m M`Z g‘P-~yPH$a H$aVo h¢, CÝh| `h nVm hmoVm h¡ {H$
‘XX Ho$ {bE H$hm§ OmZm Mm{hE Am¡a AnZr Am{W©H$ g‘¥{Õ H$mo ~‹T>mZo hoVw
à^mdembr H$X‘ CR>mZo ‘| gj‘ ~ZVo h¢.
AJbm Ah‘ gdmb - {dÎmr` gmjaVm H$s Amdí`H$Vm Š`m|?
· {dÎm ~mµOma H$s ~‹T>Vr O{Q>bVm, ~mµOma Am¡a Am‘ bmoJm| Ho$ ~rM gyMZm
H$s {df‘Vm Ho$ H$maU Am‘ bmoJm| Ho$ {bE AÀN>r Vah g‘P-~yPH$a
{dH$ën H$m M`Z H$aZm bJmVma ‘wpíH$b hmoVo OmZm.
· {dÎmr` g‘mdoeZ VWm AÝVV… {dÎmr` ñWm{`Ëd H$mo ~‹T>mZo Ho$ {bE
~ohX ‹Oê$ar.
· ^maV O¡gm Xoe, {Og‘| 6 bmI Jm§d h¢ Am¡a bJ^J 65% OZg§»`m
AmO ^r Jm§dm| ‘| {Zdmg H$aVr h¡, Ohm§ gm‘mÝ` gmjaVm H$m ñVa {ZåZ h¡
Am¡a OZg§»`m H$m EH$ ~‹S>m ^mJ Am¡nMm[aH$ {dÎmr` T>m§Mo go ~mha h¡,
{dÎmr` g‘mdoeZ Ho$ g§X^© ‘| {dÎmr` gmjaVm H$m àjoÌ Amno{jH$ ê$n go
A{YH$ {dñV¥V h¡ Am¡a BgZo ~hþV A{YH$ ‘hËd hm{gb H$a {b`m h¡
Š`m|{H$ {dÎmr` bm^ go d§{MV g‘yhm| VH$ nhþ§MZo ‘| `h EH$ ‘hËdnyU©
H$maH$ hmo gH$Vm h¡. BgHo$ Abmdm {e{jV H$aZo H$s à{H«$`m ‘|
An[adV©Zr` ê$n go em{‘b h¡ JhamB© ‘| ~¡R>o hþE ~mYmH$mar ì`mdhmamË‘H$
Ed§ ‘Zmod¡km{ZH$ H$maH$m| go {ZnQ>Zm. ^maV O¡go {d{^ÞVm `wº$ gm‘m{OH$
Ed§ Am{W©H$ n[aÑí` dmbo Xoe ‘| {dÎmr` gmjaVm CZ bmoJm| Ho$ {bE
ImgVm¡a go ‘m`Zo aIVr h¡ Omo g§gmYZm| H$s Ñ{ï> go {ZY©Z h¢ Ed§ hm{eE
na ahH$a bJmVma n‹S>Zo dmbo {dÎmr` X~md H$m {eH$ma hmoVo h¢. ~¢H$m| go
{~Zm Ow‹S>o ~¢{H§$J godm go d§{MV Jar~ ‘h§Jo {dH$ënm| H$s Amoa éI H$aZo
Vol VI No. 1 - AJñV 2018

amÁ` Am¡a `yQ>r-dma {dÎmr` gmjaVm pñW{V (2015) {ZåZ Vm{bH$m ‘| Xem©B© JB© h¡…
H$mo ~mÜ` H$a {XE OmVo h¢. AË`§V gr{‘V g§gmYZm| Ho$ gmW, H${R>Z
n[apñW{V`m| ‘| {dÎmr` à~ÝYZ H$s MwZm¡Vr V~ Am¡a ^r ‘wpíH$b hmo OmVr
h¡ O~ XjVm Am¡a kmZ H$s H$‘r Ho$ H$maU AÀN>r Vah g‘P-~yPH$a
Am{W©H$ ’¡$gbo H$aZm H${R>Z hmo. {dÎmr` gmjaVm CÝh|, g‘` ahVo OrdZ
H$s Amdí`H$VmAm| H$s ny{V© H$aZo VWm AàË`m{eV pñW{V`m| H$m gm‘Zm
{~Zm AZmdí`H$ F$U {bE H$aZo ‘|, ‘XX H$aVr h¡.
· {dÎmr` g‘ñ`m Ho$ H$maU g‘mO ‘| Jar~r, Kaoby {h§gm, AnamY Am¡a
^«ï>mMma O¡gr g‘ñ`mE§ ^`mdh ê$n boVr Om ahr h¢. BÝht g‘ñ`mAm| H$mo
Xya H$aZo Ho$ CÔoí` go ^maVr` [a‹Od© ~¢H$ Zo Zm~mS©> H$mo, Xoe H$m erf©ñW
H¥${f Am¡a J«m‘rU {dH$mg ~¢H$ hmoZo Ho$ ZmVo Jm±dm| ‘| Iwehmbr bmZo H$m
{µOå‘m gm¢nm h¡.
{dÎmr` gmjaVm H$m`©H«$‘ H$m à`moOZ Am‘ AmX‘r, Img Vm¡a na Jm§dm| Ho$
~m{e§Xm| H$mo OmZH$mar àXmZ H$aZm h¡ Vm{H$ do {dÎmr` Am`moOZm H$aZo, ~MV H$s
AmXV S>mbZo, Ed§ {dÎmr` CËnmaXm| Ho$ ~mao ‘| OmZH$mar nmZo ‘| gj‘ ~Z OmE±
VWm {dÎmr` godmAm| H$m H$maJa T>§J go Cn`moJ H$a gHo$§. AnZo OrdZ MH«$ H$s
‹Oê$aVm| Ho$ {bE g‘` go nhbo Am`moOZm H$aZo ‘| Am¡a F$U H$m ghmam {bE {~Zm
hr AZno{jV AmH$pñ‘H$VmAm| go {ZnQ>Zo ‘| g‘W© hmo gH|$, CZHo$ {bE AnZo YZ
H$m gH$mamË‘H$$ T>§J go à~§YZ H$aZm VWm F$U Ho$ Omb ‘| ’§$gZo go ~MZm g§^d
hmo gHo$. Am‘ AmX‘r ‘| ~¢{H§$J gw{dYmAm| Ho$ Cn`moJ H$s AmXV {dH${gV hmo,
Vol VI No. 1 - AJñV 2018
boI
BgHo$ {bE, {dÎmr` gmjaVm H$mo {dÎmr` godmAm| Ho$ gmW CnbãY H$amZm hmoJm
{Oggo {H$ Am‘ bmoJ {dÎmr` ‘m‘bm| go {ZnQ>Zo H$s gj‘Vm hm{gb H$aZo Ho$ {bE
Bg OmZH$mar H$mo à^mdr ê$n go H$m‘ ‘| bm gH| . ~¢H$m| Ho$ ZµO[aE go XoI| Vmo
{dÎmr` gmjaVm Ho$ à`mg CZHo$ {bE ^mdr {Zdoe h¡. Xmo am` Zht {H$ J«mhH$ hr
~¢{H§$J ì`dgm` H$m AmYma h¢. {Og Xoe ‘| ^yOmoV| N>moQ>r hmoZo Ho$ gmW-gmW
J«mhH$ ^r N>moQ>o hm| dhm§ Vmo ~¢H$m| H$mo CÝht ‘| H$mamo~ma Ho$ ZE Adga ImoOZo hm|Jo.
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{X B§{S>¶Z ~¢H$a 65
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66 {X B§{S>¶Z ~¢H$a
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~‹T>oJm. A§V ‘| ‘¢ Vmo `hr H$hÿ§Jr -
AJa Xoe H$mo h¡ J«m‘rU àJ{V H$s Mmh,
ha H$X‘ ~‹T>o {dÎmr¶ gmjaVm H$s amh.
boIH$$ n[aM¶
Manjula Wadhwa is working as AGM in
NABARD, Chandigarh. She is a double
postgraduate in English and Hindi and
also holds CAIIB and PG Diploma in
Journalism and Mass Communication.
She has 500+ articles to her credit on
varied subjects, published in esteemed national and regional
magazines and newspapers. For the past 30 years. she has
been participating in the programmes of Akashwani and
Doordarshan from different centres like Lucknow, Shimla,
Chennai, Jaipur and Chandigarh. She has also presented
papers in National level seminars organised by different public
sector banks.
She can be reached at manjula.jaipur@gmail.com
Vol VI No. 1 - AJñV 2018
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