Daily Excelsior...Business

A painful year for the banking sector

MUMBAI, Dec 23: Indian banks were in the throes of financial sector deregulation during the year 1998 as the Reserve Bank of India (RBI) pressed for further reforms in operation of banks on line with the second Narasimham Committee report.

The process is going to be more painful as the banks, mostly in public sector, are yet to get rid of the Government’s financing programme involving huge manpower liabilities and social obligations.

The inability and indifferent attitude of the authorities to bring in adequate reforms in fiscal management, labour laws, legal system for recovery of money and exit policy to match the financial sector reforms had put the Indian banks in a state of "confusion and uncertainty", leading bankers here said.

They said the majority banks who had shown profits in the previous year, would show lower profits during the year due to slow down of economy, increase of Non-Performing Assets (NPAs), rising operational cost and intense competition from foreign and private banks. Last year, banks had recorded higher profits by writing back the depreciation on their investment in Government securities and trading operations.

Bank analysts too were pessimistic over maintaining a strong bottomlines by Indian banks as they predicted a higher interest regime in the coming year following higher rate of Government borrowings coupled with increasing amount of bad loans in corporate sector.

According to one estimate, the net Government borrowings for the next financial year will be around 23 per cent higher than the net borrowings in 1998-99 as the fiscal deficit as a percentage of Gross Domestic Products (GDP) would go up to 6.5 per cent from 6 per cent at Rs 1,19,990 crore.

Bankers are in a dilemma as to how to implement the Reserve Bank’s time-bound recommendations based on the Narasimham Committee report to improve the quality of asset portfolio and enhancing the financial soundness of banks particularly when the legal procedures remained the same making recovery of loans or writting off bad debts very difficult.

In its second half policy measures in October, the Reserve Bank asked the banks to provide provisioning requirements for standard assets, Government approved securities and Government guarantee advances with effect from March 31, 2000. The minimum capital to risk asset ratio is being raised from the current 8 to 9 per cent with effect from March 31, 2000. The provisions on existing and old Government guaranteed advances which would consequently become NPAs are to be fully provided for over a period of four years beginning March 31, 1999.

While banks were advised to introduce effective risk management systems to cover credit risk, market risk and operational risk on a priority basis, bankers became very cautious in their lending to commercial sector mainly due to growing culture of investigative procedures and risk averse attitudes.

In the words of former Reserve Bank Governor Mr S Venkitaramanan, Indian Bank executives live in constant dread of the midnight knock—regulators and investigators look at fine print of process, not the outcome. The executives are afraid that at some future date regulatory inspection might hold them responsible for failures of credits for no fault of theirs, except perhaps lack of clairvoyance. In fact, many Public Sector Banks chief executives who do not want to be named told that there was very slow progress in bringing changes in legal and labour laws in India and as a result, there was a piling up of NPAs amount over the years in banks and also growing cost of wages and maintenances in banking sector.

While the Narasimham Committee underlined the need to reduce the average level of net NPAs for all banks to 3 per cent by the year 2002 and to zero thereafter, still a large number of Public Sector Banks have net NPAs ranging from 10 to 20 per cent of net advances.

Similarly, a comparative cost analysis indicated that while the average operating cost of banks as a percentage of assets was about 2.3 per cent in India during the period between 1990-91 to 1995-96, it was low at 1.1 per cent in China, 1.6 per cent in Malaysia, 1.9 per cent in Thailand and 1 per cent in Japan. This reflected the uneconomical banking operation in India which adversely affected the financial intermediation and growth in the economy, bankers said.

They felt that without gaining sufficient advantage in areas of labour productivity, technology, transparency in rules and organisational effectiveness, it would be difficult to think of a significant improvement in Indian banking system in future.

The ratio of wage bill to total income of the Public Sector Banks is very high as compared to the banks in the private sector and this needs to be brought down to improve banks profitability.

The Public Sector Banks which as a whole had been suffering losses till 1993-94, got out of the red in 1994-95 posting a net profit of Rs 1,116 crore. In the year ended March 1998, these banks posted a net profit of Rs 5027 crore and this trend gained momentum in their first half operations. However, in the last quarter of the year, banks witnessed growing pressures on their earnings following narrowing of interest spread and growing depends for innovative fundings of long term infrastructure projects.

Financial analysts felt that even the concept of credit risk in banks have undergone a radical change as the banks borrowers in industrial, agricultural and commercial sectors are exposed to greater internal and external competition with continuation and intensification of liberalisation measures.

The forces of competition, deregulation and technology were the three major environmental factors which would leave a lasting imprint on the banking sector in the years to come, they said.

They felt that the winning strategy in such an environment would not be risk aversion which would be an obvious recipe for facing extinction but of managing risk in such a manner so as to book profit from them. Banks would have to strike a fine balance between sound banking and profitable banking and evolve appropriate risk management strategies through sound capital base and developing operational skills, they added.

In fact, at the recent banks economists conference in Bangalore, Reserve Bank deputy governor S P Talwar asked the Public Sector Banks to examine measures such as introduction of VRS, reduction of deposit interest rates and closure of loss making units in order to get rid of the troubles caused by the highly competitive environment and further deregulations. (UNI)

Centre yet to take decision on commercialisation of DT cotton

BANGALORE, Dec 23: The Centre has not taken any decision to commercialise the controversial DT. Cotton, currently under field trial, though the seeds tested does not contain the dreaded terminator genes, Adviser and Member Secretary, Ministry of Science and Technology (Department of Biotechnology) P K Ghosh said.

Presenting his paper on "environmental and health risks associated with transgenic plants and status of Indian biosafety regulations" at a seminar here yesterday, he said the Government had permitted field experiment of DT cotton varieties to M/S Maharashtra Hybrid Seeds Co. Ltd (MAHYCO), in which multinational Monsanto India Ltd has 26 per cent stake.

He said the tests also helped understand how these varieties behaved in the Indian soil and in different regions and agro climatic conditions.

Dr Ghosh said food safety evaluation of the seeds, oil and oil cake of the variety was in progress to ensure whether introduction of the strain was safe to humans and animals.

State Agriculture Minister C Byre Gowda said there was a raging controversy over the field testing of DT cotton in various parts of the country. Due to lack of understanding, the terminator gene concept, which evoked widespread protests at international level, was being mixed up with genetically engineered plants or transgenics in general in India and projecting the latter also as dangerous.

He said our opposition to the entry of multinational seed companies should not develop into a "fobia" against "advance techniques" in the field of agriculture. India, which had adopted advanced farming technologies to achieve self-sufficiency in food despite the population explosion, was doing a mistake if it failed to take part in the transgenic revolution.

Department of Biotechnology (DBT) Secretary Dr Manju Sharma in her key note address, which was read in absentia, said the department had supported seven centres of plant molecular biology and a large number of research projects in the country to develop transgenic technology, to identify new genes, novel nucleic acid sequences and incorporate these valuable genes into the crops to make them disease and pest resistant.

Already insect resistant tobacco, cotton, potato, paddy and egg plants and herbicide resistant mustard are ready for field trials. Some of them were also under field trials, which were subjected to stringent bio-safety guidelines.

She said there was a built in mechanism of material checks at various levels to prevent entry of unwanted materials into the country. All the imports of plants and seeds were channeled through a single window called National Bureau of Plant Genetic Research (NDPGR), which was an adequate safeguard against entry of these unwanted strains, she added. (UNI)

India learns WTO nuances to lead 3rd world challenge

NEW DELHI, Dec 23: India finally came to terms with World Trade Organisation (WTO) affairs in 1998 and started to lead the developing world’s challenge at the trade body in the run-up to the WTO ministerial meeting at Geneva next year.

Even as it groped in the dark on amending the Patent Laws to fulfill its commitment to WTO, India showed that it is fast learning the ropes as far as various provisions of WTO was concerned.

This situation was best reflected by the the stand taken by Commerce Minister Ramakrishna Hegde at WTO ministerial meeting in Geneva in May Ihat india would not agree to fresh round of talks unless the commitments made by industrialised nations prior to signing of WTO agreements were fulfilled.

The demand took a concrete shape at a group of 15 (G-15) developing nations meet towards the year-end even as the European Union (EU) again campaigned for fresh round of talks.

Unless developing countries enjoyed the economic benefit of global trade, there could be no fresh negotiations, India said while setting the tone at the G-15 meet.

But, Government continued to face opposition from within as Left Parties vowed a fight-till-the-end against provisions in the Patent Bill for granting Exclusive Marketing Rights (EMRs) to foreign agro-chemical and pharmaceutical firms. The Rajya Sabha witnessed chaos as Industry Minister Sikander Bakht introduced the Patents Bill to provide for the EMRs but the Congress salvaged the situation for the ruling BJP-coalition.

The Bill could be introduced despite differences in the Union Cabinet on its introduction with even some ministers in the coalition opposing grant of EMRs.

But, reports indicated that Industry Minister Sikander Bakht and Prime Minister Atal Behari Vajpayee prevailed over the opponents and Government took a step forward to meet the wto deadline of April 19, 1999 to update its Patent Act.

While deciding to grant EMRs, Government also decided to simultaneously start work for product patent and even in EMRs it resolved to intervene and fix floor price for essential drugs.

No one could have predicted that India would make rapid progress in dealing with wto matters at the beginning of the year, when it gave an undertaking to WTO that it would have its updated patent law in place before the deadline.

This was followed by an EU complaint to WTO on the same matter in which the WTO Dispute Settlement Panel (DSP) reiterated its earlier order of October 1997.

But as the year unfurled, India showed that it could be not taken lightly anymore as it took on the might of countries like the US. (PTI)

CVC announces guidelines to prevent bank frauds

NEW DELHI, Dec 23: The Central Vigilance Commission (CVC) today announced new guidelines to public sector banks and the CBI for preventing bank frauds and removing the "fear psychosis" gripping the bankers while disbursing credit.

Under a separate chapter on banking in the CVC manual finalised today with Reserve Bank of India officials, senior executives of nationalised banks and the CBI, it was decided that the CBI should fully coordinate with banks in bank fraud investigations, Central Vigilance Commissioner N Vittal told newsmen here.

The separate chapter in the CVC manual will be applicable from the new year day and will cover present and the future bank fraud cases, he said.

Vittal said a notification to this effect will be issued within a week.

It was also decided to set up advisory bodies in all the PSU banks under the supervision of the regional offices of RBI within one month besides the Central Advisory Body (CAB) already existing at the RBI.

While the cases in the level of general managers and above will be taken up with the CAB, the bank level authorities will take up the other cases, he said.

The new chapter will have overriding powers over earlier bodies set up for the purpose.

The advisory bodies for the banks will have honest and efficient retired bankers besides retired district judges and retired police officers in the rank of DIG, he said.

When asked how the CVC will ensure the honesty of these persons selected for the post, Vittal quipped "you don’t expect that the CVC will blindly agree to the names suggested. We will also verify from our end. Their names will have to be cleared by CVC".

The new mechanism will provide an impetus to the infrastructure strength of CBI, he said.

Asserting that the CVC had also built in a sense of confidence among the bankers, he said while the CBI will go ahead with the cases referred to it directly by the bankers it will seek advise of the new bodies with regard to fraud cases brought to its notice through other complaints.

Elaborating on the coordination mechanism between the bankers and the CBI, Vittal said under the new requirement the CBI will have to hand over the documents taken from the banks for investigation purposes within four days after taking photostat copies of the same.

Likewise the banks will also have to part with the documents required by the CBI for its probe. (PTI)

Plea for Govt-private ventures in pharmaceutical research

NEW DELHI, Dec 23: Chairman of Ranbaxy Laboratories Ltd Parvinder Singh today suggested multi-pronged strategy to promote research and development in the Pharma sector in India which can help facilitate the process of discovery of new drug which takes between 7 and 12 years and 500 million dollars. He said that since the size of domestic market in India is roughly 2.7 billion dollars, the domestic players on their own cannot afford a research expenditure of this magnitude. Therefore, new synergies have to be developed between the private sector and the Government to strengthen the Pharma sector, he added.

In his keynote address at the 12th National Conference on In-house and R and D in India, organised jointly by the Federation of India Chambers of Commerce and Industry (FICCI) and DSIR in the capital today, Dr Parvinder Singh said that of the Rs 3,000 crore collected annually in various forms of taxes by the Government from the Pharmaceutical industry, the Government could set aside a portion say Rs 500 crore to fund 10 separate drug discovery research programme every year which have 5 independent projects under its fold.

It would be able to develop at least one New Chemical Entity (NCE) in 5 years per programme. This should be made available through long-term soft loan at zero to 4 per cent to fund joint venture projects between Government and industry. The drawal and repayment of funds should be linked with accomplishment of milestones and commercialisation of products respectively.

Dr Parvinder Singh also said that there is a need for networking between Government, lab and private companies. A handful of Indian companies and a private-Government labs have ventured into this area so far. He said that the Government labs should form one to one joint ventures with these select companies financed through the funds earmarked for drug commercialisation programme in areas like drug design, synthesis and screening, animal pharmacology and toxicology studies and human clinical studies.

The first step towards this is setting up joint ventures for rational drug design, combinatorial chemistry based synthesis and high throughput screening capabilities. For instance, a Government laboratory, CDRI, Lucknow, collaborates with a private sector company to design, synthesize and screen compounds in the field of anti-infectives.

The next phase of drug discovery, he said, should be pre-clinical phase, where Pharmacology and Toxicology studies are conducted on animals. Through the funds available to the research programme, a separate joint venture should be formed to create facilities for GLP conforming Toxicology and Pharmacology studies. This should be a partnership between the Government and the private sector.

The third area in the process of discovery is to conduct human clinical trials. It is possible to create facilities for clinical trials conforming to GCP standards at identified Government hospitals, again through the joint venture route, using the funds available to the research programme. Such facilities would first cater to the needs of the joint venture and could also function as a contract research organisations for optimal utilisation of spare capacity.

Dr Parvinder Singh also dealt at length the success stories in the Pharmaceutical sector in China and Korea. He highlighted the need for laying the right kind of infrastructure to support scientists in their endeavours and to catalyse the brain power.

China has realised the need for creating such an infrastructure and their considered feeling was that the domestic industry on its own would not be in a position to fund basic Pharmaceutical research. It has therefore taken the onus of creating the environment and infrastructure to complement private research endeavours.

During 1996-2000, the Chinese Government earmarked 1.2 billion dollars for Pharmaceutical research. The overall plan was aimed at development of 30 new drugs, new formulations and traditional Chinese medicine.

Referring to Korean strategy that also sought the support the domestic Pharmaceutical industry through a legislation that was aimed at promoting science and innovation in the country, Dr Parvinder Singh said that the research produce at lab emphasised at development of new molecules, improvement and development of manufacturing technology.(UNI)

Single authority for telecom, IT & broadcasting mooted

NEW DELHI, Dec 23: PTC India Foundation (PTCIF) a country chapter of the US-based Pacific Telecommunications Council has called for a single regulatory authority and a single ministry to deal with the converging technologies and services in information technology telecommunication and broadcasting.

In a set of recommendations submitted to the Prime Minister’s Group on Telecommunications (GoT),the PTCIF has suggested delinking of network operation from the services, single license specifying only areas of operation, facilitation of convergence of services and technologies, opening up of long distance with priority to existing operators, and replacement of licenses with revenue sharing arrangements in the new telecom policy which the group is in the process of drafting.

The PTCIF suggested a telecom density of 10 per 100 by the year 2006 and of 25 by the year 2010. It warned that otherwise the service would be confined only to ruler areas thereby widening the gap between the rich and the poor within the nation. This would increase public resistance to economic reforms.

The foundation suggested strengthening of the TRAI which should determine the number of operators and criteria for selection. "To DoT’s position as the dominant incumbent service provider would continue well up to the end of the coming decade. As such TRAI must have an active role to ensure a level playing field for the new service providers," the foundation said.

It added that the Government’s attempts to restrict the role of the regulator specified in the TRAI Act during the last two years "was a primary reason for the investor concerns that have critically cut off the flow of funds to the private sector in Telecom."

The PRCIL’s 23 recommendations were drafted after a wide-ranging consultation with Telecom industry, and professionals both from telecom, I T and broadcasting. A delegation of the foundation led by chairman Dr N.Bhaskara Rao submitted the recommendations to the Telecom Secretary and Chairman of Telecomm Commission Anil Kumar. The delegation would also be meeting Minister of Communication Jagmohan and the members of GoT.

The foundation also said that the lack of progress in delinking DoT as a service provider from the policy making body, the Telecom Commission despite several statements, had disastrous consequences on the implementation of the 1994 Telecom Policy. " The fear that DoT as a incumbent service provider would interfere with the process of private sector entry in some way or the other due to its perch in the policy making framework and hold on it, is seen as a major threat to the success of the new Telecom policy," the foundation said. The recommendations pointed out that the separation of DoT’s network ownership and management from service provisions was necessary for the optimum utilisation of its core strength. The local service provision could be licensed among different service providers.

The service providers could also include DoT employees cooperative or corporations,the foundation said.

The PTCIF acknowledged that these desirable changes could not be implemented so far because of the fear of the existing licensees about the loss of the money they have already paid as upfront. They had also made huge investments or planned such investments in future, the solution therefore rests on a successful resolution of the license fee tangle.

In this regard the suggestion were that the operator are finding difficult in paying lumpsum fee at the start of every year and a revenue sharing formula to be suggested by TRAI keeping NPV to be the same and extending the license period up to 25 years for the value added and basic service operators be examined.

It was also suggested that as the basic services requires large sums of moneys, the number of operators be kept perhaps only two or three and only free all be done for value added services. The foundation said that the object of the change in license fee regime should be to ‘’maximise connectivity and not maximise revenue to the Government.’’

Proposing deregulation of long distance and move towards in international connectivity as well as prepare for voice to be carried over intent, the PTCIF argued that " Telecom policy should prepare for this convergence rather than build firewalls against it."

Regarding village telephones, the recommendations are that a social obligation fund should be created into which all operators including Government should contribute. The Government contribution should be like it does for rural electricity corporation’s work. This fund should help finance village communication assistance being given to village cooperatives to set up village PCOs.

Even a mobile phone could act as a cost effective PCO in some areas. Power and Railway authorities that have a network could also use their optical fibers to spread into the nearby villages.

The PTCIF urged the Government to help create a strong manufacturing base for telecom equipment, especially software. The hardware policy recommended by the IT Task Force for computer hardware could be effectively applied for telecom hardware too.

Local telecom equipment purchase for projects should be treated as deemed exports and the incentive available for such exports should be available for these equipment sales also. Indigenous technology and equipment based on it should get some weightage in local purchases.

The policy should help optimise radio spectrum utilisation and migration of band, all users must be asked for its use, its allotment should be done in transparent manner and by the regulatory authority than a department of the Government.(UNI)