Friday, September 30, 2016

Kerala CM stops RR proceeding against Education Loan Defaulters

   The Chief Minister of Kerala Shri. Pinarayi Vijayan has asked the Revenue Recovery authorities to stop proceedings against Education Loan defaulters. He asked the banks to start recovery proceedings only after the student has got job with salary that is capable of repaying his debt. This news got great publicity through malayalam news papers. The the banks in Kerala cannot initiate Revenue Recovery Proceedings against Education Loan defaulters.

   I don't think that the editors of Malayalam Newspapers were not aware of the banking related activities. Because this news was given a good heading that was easily seen by the readers. Normally a reader will think that the banks cannot force him to pay the loan dues until the student gets a good job. This is not true.

   Revenue recovery is one of the methods the banks use to recover dues from the loan defaulters. For this the banks will file the details of the defaulter in the RR website. This will be taken for recovery by the Collector (RR) and initiates recovery. The notice will be served to the defaulter through Village Office. The defaulter was given a specific period for paying off the dues. The the dues was not paid off, the properties of the defaulter will be seized and realize the dues from his property. This is the most low cost recovery method for the bank as well as for the borrower as the commission for government is very low. This is the most preferred method by banks.

   Can banks be prevented from taking action against Education Loan Defaulters by preventing Revenue Recovery? -- Definitely No.           The banks can file suits in the court against Education loan defaulter. But this is time consuming and costly both for bank and defaulter. This will reduce the chance for getting the job as well as prevent from going abroad. After the case is disposed, if the defaulter was asked to pay the dues (in most cases court allows banks to realize the amount from the defaulter and no court will say not to pay) the bank's advocate fee has to be paid by the borrower. Thus the defaulter has to pay off his loan amount and also has to pay the advocate fee for both bank and himself. 

   The banks can also use the services of recovery agents who will contact you through phone and periodic visits. Even if the recovery agent deals with you in polite manner, your reputation will be in peril since the periodic visit by recovery agent will make aware all the people in your locality that you are a bank loan defaulter.

   The banks can do more damage by reporting your default condition in CIBIL. CIBIL is a website in which the banks report the credit worthiness of the borrower so that the other banks can check whether the borrower will repay the loan if they grant him a loan. It is sure that you need a loan in future life like personal loan, housing loan, car loan etc. When you apply for a new loan or credit card, they will check your CIBIL score. You will get credit only if it is satisfactory. Thus banks will prevent you from getting bank loans in future. Some firms also verifies CIBIL before giving job to measure the financial discipline of the employee.

   It is true that that the interest rate for the education loan is high. This is because, banks interest rate is fixed on the principle called Risk Based Pricing. As the risk of default increases, the interest rate also increases. Most of the banks don't want to take action against the borrower who is willing to pay. Once your account slips into NPA, it is better to goto the bank for One Time Settlement (OTS), in which the banks will take a small portion of the interest apart from the principal to close the entire loan. You cannot force the bank for OTS as this is purely under banks discretion.

   I have heard that most of the defaulters saying that the education loan has to be written off. Actually bank is a business institution. Its aim is to make profit through serving the society; means its not a charity institution. Nobody questions the government who is responsible for higher cost for getting education that siphons public money into the pockets of corporates who owns educational institutions, nobody questions about the lower salary(especially that of nurses), nobody questions lower employment. Already banks are suffering huge losses. That is why Central Government is not willing to write off the bad loans. If entire education loans were written off, some banks may become history. I wont say to pay your loans regularly to be a part of national building, but pay your loans to protect the banks which is the back bone of our economy.

Thursday, June 23, 2016

A brief insight in to the merger of State Bank Group from Business View

Let’s look in to the merits and demerits of merging of State Bank Group


1.       Avoid Duplication: This is the one of the main reason the management is putting in favour of merger. A person may have account in both SBI and Associate Bank. Most of people open a secondary account to get government payments like LPG subsidy, kerosene subsidy, MNREGS payments etc. In such cases both banks has to provide Passbook and other banking facilities to such persons. If the banks were merged together and form a single entity, the customer has to depend only on one bank and the operating costs comes down. Also in most areas branches of SBI and Associates functions within a radius of 100 meters. In such cases one branch is enough to serve the customers after merger.

2.       Monopoly: The merging gives SBI monopoly in banking in several states in India. Each of the Associate Banks are enjoying a good market share in corresponding states. When these banks are merged, SBI’s market share will increase considerably and gives monopoly over other banks in formulating products and services.

3.       Research and Development: Even though all banks in State Bank Group use same technological platform, the software and all the technology used in banking has to be customised as per the requirement of each Associate Bank. This creates additional cost for the banks. After merging, this cost can be saved.

4.       Increase Size: As usual the merging increases the size of the SBI to a great extent, as all Associate Banks have more than 500 branches. All these branches adds to SBI to become a giant bank.
5.       Reduces Operational Cost: All Associate Bank has several departments like Core Banking, Tax, Treasury, Vigilance, Personal Administration etc. as all are having business of thousands of crores.  After merger, instead of maintaining individual departments for each bank, departments for a single bank is enough. This reduces staff and other branch related costs.


1.       Reduces choices for customers: Since this merging reduces number of banks, the customer dissatisfied with the service of one bank has a little choice to select another bank in his locality. Also SBI is opening branches more in urban areas than the rural areas. So the people of rural areas have to travel long distance to do banking.

2.       Reduction in Employment: Since the number of banks get reduced, the job opportunities also get reduced. After merging, only SBI hire people.

3.        Distress in Employees: The unions have already created a bad image for SBI in the minds of staffs of Associate Banks and also for the public. After merging, the staffs (not all staffs) of Associate Banks will work with less commitment to the new bank than the previous Associate Bank. Some bridging sessions in training will make the conditions better.

A brief evaluation regarding State Bank Group Merger 2016

India’s largest lender State Bank of India has surprised everyone by announcing the merger of its Associates soon on 17th May 2016. After the news of the merger of Associate Banks of SBI with itself has created a shift in share market. The share value of Associate Banks have risen to several heights. The workmen unions are opposing merger through demonstration in various centres as well as by conducting rallies. The management has given a good publicity regarding benefits of merger through various media. As the talks on the mergers was going on, everybody is curiously looking into the pros and cons of merger.

BEFI members protesting against merger
BEFI's protest against Merger
AIBEA conducting two wheeler rally against proposed Merger

The pros and cons of merger can be viewed from three different angles.

1.       Business
2.       Customers
3.       Staff

(*Click on the above links to know more)