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Business News/ Industry / Banking/  Rajiv Takru: Situation at United Bank mainly due to management problems
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Rajiv Takru: Situation at United Bank mainly due to management problems

Takru explains the steps taken to put United Bank's house in order and capital infusion options being explored by govt

Rajiv Takru says there was a genuine problem with the software at United Bank and it has the record to prove it. Photo: Prashanth Vishwanathan/BloombergPremium
Rajiv Takru says there was a genuine problem with the software at United Bank and it has the record to prove it. Photo: Prashanth Vishwanathan/Bloomberg

New Delhi: The various enquiries into what went wrong at United Bank of India have pointed to deficiencies in management and the software used by the lender but have given the lender’s directors a clean chit, said Rajiv Takru, who was on Monday appointed revenue secretary in the ministry of finance. Takru, talks about the steps taken by the government to put United Bank’s house in order, the various capital infusion options being explored by the government to ensure sufficient funds for state-run banks, and the stalemate in wage negotiations, in an interview conducted when he was secretary in the department of financial services. Edited excerpts:

What is the finance ministry’s action plan for United Bank of India?

The appointment of a chairman is in process. We have got the forensic audit report, the RBI (Reserve Bank of India) audit report and the administrative enquiry report. All of these have been looked at. They have all pointed out what they perceive as deficiencies and now they are being addressed. Addressing of deficiencies falls in two parts. There are deficiencies that can be addressed right away which are more or less executive in nature. The rest is part of a larger change, which will take time. But the most important thing is the NPAs (non-performing assets) that are being completely concentrated on. The recoveries in cash and the restructured book have crossed 2,900 crore. It is not whitewashing or fudging of books. What has actually happened is that even cases where the other banks in a consortium had implemented CDR (corporate debt restructuring), United Bank did not implement it and it slipped into NPAs.

This was mainly due to internal management problems, which they could not resolve despite their best efforts earlier. Now they don’t exist any more.

Now such accounts have been restructured in line with the environmental behaviour. We have given them clear instructions that we don’t want window-dressing…no whitewashing. But we would have been much happier of course if all this had come to light earlier and these foolish mistakes had not happened.

What are the deficiencies the reports have pointed out?

One, there was a genuine problem with the software and they have the record to prove it. They say that even a manufacturer in a letter has told them that these are the deficiencies in the software that resulted in some kind of accounting problem in the bank.

It was silly, in my view. If these shortcomings were there, they should have been rectified by the supplier. If it was not falling in the work ambit, the bank should have got it rectified at that time.

But was it only technology at fault or was there a human factor?

Basically, it was a management problem. The decision-making had for one reason or the other got jammed. We tried on our part. The board of directors also tried. The equations reached a point where the only way perhaps to sort it out was to part company. The CMD (chairman and managing director) was of course not keeping well and put in her papers.

Will we see a change in the board of directors or in the executive directors at the bank who were there during this whole period and didn’t probably step in at the right time?

The board meets once in every two or three months where the agenda is six inches thick with many charts. The board is also largely handicapped. Though all reports have not been analysed, I am not seeing much of anything that I would like to pin on the board of directors here. They ultimately have to rely on the management. Although the honourable Supreme Court has said that it is the responsibility of the members of the board to ask questions, but a board member will only ask why the NPAs are going up. He is not going to say bring me every case of NPA and check if it is a proper NPA or not.

Even RBI and government instructions to the banks are to look at the top 30 NPA accounts. The management role cannot be taken over by the board. It is not a good idea to paint everyone with a black brush. I don’t think we should get into this witch-hunt mode. These are problems which happen. In financial institutions, it should not happen. And the executive directors are the guys who are now doing the recovery.

Why has the government not found a long-term solution to capitalize state-run banks? There are various models being discussed, but every year it is a struggle to capitalize banks.

There is no way the government is going to allow public sector banks to default on the capital adequacy norms under Basel III. RBI norms are more stringent than Basel III, which is good and desirable. Capital is required not only because of Basel III, but also because of the stressed environment. As more and more assets fall into the NPA category and RBI asks banks to make more provisions, more capital is needed.

It should not sound ominous, as most of the assets are recoverable. CCI (cabinet committee on investments) is approving projects and major roadblocks have been removed. But the impact will take some time as these are huge projects. The minute the asset comes out of the NPA category, the capital requirement will come down. We just got stuck in a bad time in the economic cycle.

The government is anyway providing capital. We have provided 11,300 crore in the budget. The final budget will come in June. We will know how much we want and we will get it. So this figure is not written in stone.

Also, banks have not adequately explored other ways of raising capital. Either in terms of other forms of Tier I capital like perpetual bonds which PFRDA (Pension Fund Regulatory and Development Authority) has allowed and Irda (Insurance Regulatory and Development Authority) is looking into.

There are other ways also like rights issue, QIPs (qualified institutional placements), employee stock options. Till now, adequate emphasis on some kind of efforts to raise capital from other sources has not happened because there was an unconscious feeling that anyway the government will put in capital.

But the government is only a part shareholder, and what is a better judge of a bank’s credibility than the market acceptability of an equity issue? We will definitely see some of the options being used in the next fiscal.

How are wage negotiations progressing with the bank unions?

Wage negotiations had been going smoothly. But what I am told by IBA (Indian Banks’ Association) is that the unions are asking for a 30% hike. No bank can afford 30%. Negotiation has negotiation positions. If I say ‘X’ and the other party says ‘Y’ and both say this is final, there is no negotiation.

Banks have moved from 5% to 10%. But apparently the union representatives did not see it fit to budge from 30%. Negotiation is with IBA—I don’t have anything to do with it. But as a large shareholder, the government will be very interested in what the banks are going to pay out. You can’t have a situation wherein the entire profit of the bank goes in paying its employees. It’s not an employment agency. The bank has to generate capital through retained earnings. ​

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Published: 25 Mar 2014, 12:04 AM IST
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