IMPROVEMENT IN INDIAN PSU BANKS CAN ONLY TRANSFORM INDIA INTO A FINANCIAL SUPERPOWER

Meenu: - At last, one of the worst years of the world, the 2009 has ended. Let us hope that this 2010 will be a bright year for us. But, 2009 was really good for the Indian PSU Banks. Around 85% of Indian PSU banks have increased their profit margin by more than 37.42% on an average, which is not bad at all.

Kaushik: - Are you talking about private banks or PSU banks? I don’t think that these PSU banks have done so much profit in 2009. Why people will invest in those banks, where the work culture is just useless.

Sonam: - No, Kaushik, then your perception is wrong. Nowadays, the work cultures of PSU banks are changing. They are now working on a 24*7 customer support theory. There are even corporate branches, where people are working in night shifts also. In Mumbai, many PSU banks have already started implementing updated IT applications in their core branches.

Prakash: - Wow, then that is a good sign. See, if a customer gets the same kind of service from the PSU banks, as they get from the private banks, then why they should invest on private banks. After all; at least, PSU banks have a security, as Indian Government acts as a back-up for those banks. Today, when I am keeping my money in any savings or current accounts of ICICI, HDFC or HSBC banks, I don’t know when they will just close their banks out of bankruptcy. If Lehman Brothers can collapse, then where is the guarantee for HSBC, HDFC and ICICI banks?

Arindam: - Moreover, when you are investing your money in PSU banks, that means you are indirectly contributing to make your India financially strong. See, for example, when you are keeping money in a foreign bank like HSBC or any other American Banks, then that means you are indirectly helping the other countries to utilize your money for their business purposes, which is indirectly reviving their economy and ruining our Indian economy. If the NRI people are not contributing in the GNP of India, then that does not mean that we, the people who are residing in India will not contribute in India’s GDP.

Kaushik: - but, this work culture, laziness of PSU bank employees, all those unions among the employees, no IT applications, creates a huge problem. If you visit a PSU bank, then just by seeing the office structure only, you will feel as if you have entered a haunted house. Electric wires are hanging here and there. Employees do not have their own cubicles. They are sitting on those old torn chairs. There are no A/C facilities. Canteens are just useless. PSU banks are not at par with private banks. Whenever you will enter an ICICI bank, there are people roaming here and there and will ask you, ‘May I help you, Sir?’ Now, that kind of culture is not there in any PSU banks. In private banks, customer is treated as King and in PSU banks, customer becomes the slave. To open a bank account in PSU bank, a customer has to do buttering to a mere clerk also. This is not accepted, boss.

Meenu: - No, Kaushik, these things are changing. Massive restructuring of all the PSU banks are going on. Now, Indian Government has also understood the importance of PSU banks. One thing is good in this government that Manmohan Singh, P Chidambaram and Pranab Mukherjee are from finance background only and they can surely change the corporate structure and functioning of PSU banks. Also, Amartya Sen should take the initiative of framing micro-finance banking strategies in rural sectors of India, like Mr. Mohammad Younus did for Bangladesh Grameen Bank.

Arindam: - The problem is elsewhere. A villager of India does not even know how to use ATM cards and what is the essence of that PIN numbers. At least, thanks to SBI for its immense number of ATM centers throughout India, but, PSU banks have lacked on one thing, where ICICI bank have capitalized. See, I am a customer of a bank, so, I am just like a trainee for your bank. It is now the bank’s responsibility to teach me, how I should make optimum use of the bank’s service, so that, at the end of the day, I am satisfied. ICICI Bank always teaches its customer about all its services from Internet Banking to ATM functioning. PSU banks have failed to teach its customer as well as they are yet to implement full-fledged IT applications. You have to appreciate the fact that “IMPROVEMENT IN INDIAN PSU BANKS CAN ONLY TRANSFORM INDIA INTO A FINANCIAL SUPERPOWER”.

KOLKATA WILL BECOME THE SECOND FINANCIAL CAPITAL OF INDIA

Deepak: - Just having a second largest shopping mall does not signify that the city is getting developed financially. Ok, I agree to the fact that Wipro and Infosys have been allotted lands in Rajarhat to open up their new campuses, but that does not make Kolkata financially strong. In that city, people do not earn as much salary as a person earns in Mumbai.

Saswati: - Don’t underestimate the people of Kolkata. Earning high salaries does not make a person rich. It is the savings, which creates your own wealth. In Mumbai, if a person earns 45000 bucks per month, then it is similar to a person earning 25000 bucks in Kolkata. In Kolkata, the cost of living is very low. Here, you can hardly do expenses, if you want to do also.

Nisha: - But, Kolkata people do not have the mindset to build up their own small businesses also. No such infrastructure is there for setting up any new business. In Mumbai, people are totally focused on increasing their money overnight and that is why, they always try to innovate new style of businesses. For example, the Dabbawalas created business with some foods in their dabbas only, with timely delivery and great customer service.

Bhanu: - Then, please come and visit Howrah and Hooghly district of West Bengal and also the Burrabazar area of Kolkata. You will be stunned to see the business attitude among the local people there. But, the irony is, that despite having so much potential for industrialization and SMEs, the CPI (M) government has not been able to capitalize on it for 30 years. Jyoti Basu tried to exploit businessman Goenka a little bit, but that too failed, due to the powerful impact of CITU Unions on CPI (M) Politburo of West Bengal. Garden Reach area lost its glory.

Deepak: - Yeah, I can understand the fact that under the CPI (M) rule, education and health has deteriorated in West Bengal. As a net result, people are too much illiterate and became violent, as there is no development at all. The violence of Maoists in Midnapore and demand for a separate Gorkhaland state in North Bengal are just the products of poisonous seeds, which CPI (M) has sown, in their 30 years tenure. Now, as you sow, so you reap. There is no point in investing for creating new businesses in Kolkata. Everything is destroyed, boss. Come to Mumbai, it is continuously progressing, despite having some problems like 26/11 and Raj Thackeray’s racial madness.

Arindam: - Many people are unaware of the fact that Calcutta Stock Exchange was one of the strongest stock exchanges of the world during the initial period of 1900 AD or so. Later, after the partition of Bengal and the shifting of power from Kolkata to Delhi, the CSE lost its power. Now, why, the glory of CSE be brought back again? Kolkata is a city, which is like gold mines for creating businesses. The only problem is that we have destroyed our old infrastructures to do research on these gold mines to create businesses. Again, start from the scratch and if we succeed in it, then Kolkata is the best city for doing businesses, as the cost of labor, production, raw materials, and transport are much lesser in Kolkata than any other cities.

Nisha: - But, if I abide by the statements of PrafullaChandra Bose, then Bengali people lacks business mentality. Now, no matter how much you invest in that city, if the mentalities of Kolkata people are not business oriented, then it will produce no results at all.

Saswati: - as per recent survey and research, it proved that after 1995 or so, the advent of private sectors in Kolkata have changed the work culture among young Bengali generation. Earlier, a Bengali people used to think 5 times, while coming out of his own locality also. Now, Bengalis are spreading their businesses worldwide, because they have tasted the first blood of business. Today, you will find a person from Narendrapur is travelling to Rajarhat by Metro Rail to attend his office. Earlier, that mentality was not there at all.

Bhanu: - Due to these political dog-fight dramas between CPI (M) and its anti-parties, the entire Eastern India has suffered. You cannot ignore the fact that Kolkata is a strategic location as well as the door of Eastern India. Ratan Tata was not a fool to invest in Singur. The change in the mentality of people and its outcome as a correct political decision is the need of the hour. Then only, “KOLKATA WILL BECOME THE 2^nd FINANCIAL CAPITAL OF INDIA” within 2013.

NON-DEVELOPMENT IS THE MAIN ISSUE

Hitesh:- I agree to the fact that during 1950’s this Telangana region was merged with the rest of Andhra Pradesh, and that is why, they are now demanding for a separate Telangana state. However, on the other hand, how can you pass the bill in the AP Assembly house, if almost 100 MLAs from different political parties resigns?

Saurav: - after 5 decades also, not a single CM of AP has done anything for that Telangana region. Hyderabad was a princely state under Nizam, that is why, it has some good infrastructures. Later on, Chandrababu Naidu made it one of the greatest IT hubs of Asia, which indirectly helped Raju to acquire many lands in good discounts. Now, if you omit the Hyderabad city from the Telangana region, there is nothing at all in this region. There are no good schools or Universities, not even a single power plant. No development is there in this region and that is why they want a separate state.

Palash: - But, is the formation of a separate state, a feasible solution? In this recession market, there is no Genie of Aladdin in India, that they will do rapid development of Telangana region. Where will Hyderabad go? Well, if it remains under Telangana, then not a single corporate will be willing to invest in Hyderabad as an expansion of their branch office. Now, on the other hand, if I consider Vizag to be the next capital of Andhra Pradesh, then at this moment, to create administrative infrastructures in Vizag as a capital city, will be a huge expense for the UPA government.

Rohit: - If you create a Telangana state, then agitations may come from different parts of India to form Rayelseema, Bundelkhand, Vidharva, Gorkhaland and Bodoland states. However, they do not have any valid issues for those agitations. They just want a separate state to gain political advantage, that’s all.

Arindam: - Maybe, Telangana can be formed, but that too is not feasible, as per the present financial scenario. If you analyze the entire situation, then the biggest question to be asked is that why KCR suddenly went for a fast in 2009, but not in 2006? YSR is from Telangana region only and he was an able leader of Congress to tackle all these problems single-handedly. Even, the role of Chandrababu Naidu was creditable, as it is for him only, Hyderabad earned so many revenues, and it helped in the economic improvement of Andhra Pradesh excluding the rural sectors. YSR rightly focused on rural sectors and it was the need of the hour. Now, after YSR’s death, the politics within the Reddy family also came out in front of the public. The son of YSR is still very young to control the state affairs. K Roshaia is not as aggressive as YSR and that is where; the TRS wanted to capitalize; because if there is a separate Telangana state; nothing will change for a common men like you and me, but it will surely help TRS to come into power and KCR will become the CM of that state.

Saurav: - Well, to some extent, I will agree to you. One thing, we have to appreciate that the Congress party of AP is not having unity among themselves, and that is why, they all resigned. In Andhra Pradesh, there are only two great cities Hyderabad-Secunderabad and Vizag. If you divide a state into 2 or 3 halves, not a single citizen of any state will gain anything. Only, the political parties will gain out of it. When, Jharkhand came into existence, Bihar was the ultimate sufferer, because all coal mines and natural resources were in Jharkhand only.

Hitesh: - Congress is not like Communist parties, but still, why there is no development in this Telangana region under the rule of UPA 1 and UPA 2.

Arindam: - In communism, you always have a tendency to pull down the strongest player to a level, which is at par with the lowest level. That is why; Russia and Bolivia suffered a lot. Look at China, their communism is having the blend of capitalism, where they never pull down the strongest player, but upgrades the weakest player to a certain level, which is at par with the highest level.

Palash: - No matter, what is your caste or creed; if there is no development in your local region for decades, then you will start agitating and demand for a separate state of your own.

Rohit: - Everyone have an illusion that forming a state of their own will do wonders. Indian Government should understand that “NON-DEVELOPMENT IS THE MAIN ISSUE.”

DIVESTMENT OF PSU BANKS WILL RUIN INDIAN ECONOMY IN THE LONG RUN

Pinky: - Idiot! You are such a fool. Why the hell have you resigned from Mahindra Satyam? You are unemployed now. There are no jobs in the market now. You have just ruined your career, dear.

Arindam: - Arrey, at least, resignation is far better than job termination. I used to work as an Analyst (PMO) for ADMS-JAVA circle. After the management re-structuring by Mahindra, the entire unit have been closed. Already more than 500 people of JAVA-ADMS unit have been shown the door. They kept me in virtual pool and told me to find a job within 18^th December 2009, otherwise, my job will automatically be terminated. And, they also provided me an option of Loss of Pay (LOP), where I can stay in the payroll of this company, but, I will not get any salary. So, for me, the only feasible decision was to resign and I did it on 2^nd December 2009 only.

Gautam: - Oh! Just forget your job in Mahindra Satyam as one of the nightmares of your career and move ahead. In your case, I will say that you have taken a good decision to resign. The company ‘Satyam’ does not exist at all. It is all of Mahindra now. So, they will just fire the previous Satyam employees; if not today, then maybe tomorrow. By the way, what are your future plans now?

Arindam: - Hmm…let me see. I am looking for a new job, but side-by-side, I will try to crack any PO exams of any PSU Banks, as early as possible. For that, maybe, I need to get some training about it.

Sanjana: - Wait, wait, just hang on. What did you say, PSU Banks? Arindam, you have done your MBA Post-Graduate degree; and you want to join in a PSU Bank as a Probationary Officer? Are you mad or what?

Pinky: - What is wrong in that? Indian Government has increased the pay scale and there are so many facilities as well as benefits in these PSU Banks. Above all, there is a job security.

Gautam: - Boss, those sweet days have gone. Nowadays, a branch manager of any PSU Bank does not come back home before 10.30 PM. If today, the private banks like ICICI, HSBC, and HDFC banks are faring well in the market, then it is due to those lazy and lagging attitudes of the PSU Banks’ employees towards their customers. Do you think that if SBI would have always updated their products and if they would have implemented online or IT-related operations in their banking transactions, then ICICI would have ever got any response from anyone?

Sanjana: - The Indian Government is also planning for divestment in the PSU Banking sector. See, the logic is very simple. First of all, the Indian population is increasing. On the other hand, 67% of Indian populations are below 38 years of age. The retirement age has been reduced to 56 years from 60 years. When these people are resigning from the banks at this age, the PSU banks are finding a huge gap in the number of employees, that they should have. That is why, all the PSU Banks are now going for bulk recruitment for their junior and middle level management, and they are hiring young and fresh people to compete with the work culture of all these private banks.

Arindam: - The medical science has improved a lot and as a result, on an average, people are now dying at the age of 75 years. Now, after 58 years, the government has to pay the pensions to these people for another 15 years or so. That is becoming a huge burden for Indian Government. To curb that expense, they are somehow applying the strategies of divestment or motivating the PSU banks to acquire the private banks. Sometimes, you will find the merging of banks also. So, at the end of the day, the Government is reluctant to reduce its stake on the PSU Banks in order to improve the work culture, because as an employee of a PSU Bank, if they cannot give any results, then the investors of that PSU Bank will not spare them at any cost.

Pinky: - To a certain extent, I agree to your point. But, if the government will reduce its stake in any PSU banks and will gradually make it a private bank, then don’t you think that it will directly affect our Indian economy. For example, if today SBI becomes a private bank and there is a huge global market recession, then who will rescue them. Where will be the security that my money will be safe, if I keep money in a bank? Arindam, “DIVESTMENT OF PSU BANKS WILL RUIN INDIAN ECONOMY IN THE LONG RUN.”

CALCULATION OF BETA VALUE BY USING MS-EXCEL

Mohit: - It is very easy to calculate Beta by using SAS. You just need to extract the data of the returns of a security and the returns of the market. Then, it will automatically calculate the Beta, without any headache at all.

Sanjana: - What is Beta?

Arindam: - Beta is just a mathematical notation, which gives the result of the covariance of a security in respect to the market divided by the variance of the market. If the value of Beta is equal to or more than 1, then it is a very aggressive security, and if it is less that 1, then it is not so risky. But, if there is no risk, there is no gain at all.

Pratibha: - But all of us don’t know SAS like Mohit. So, it is not so easy for us to calculate the Beta value. We can’t just be dependent on ‘PROWESS’ or ‘BLOOMBERG’ database to know the exact Beta value of a security.

Mohit: - No, I think that you people can also calculate the Beta value by using MS-Excel. Just take the data of any security and the Nifty for say 180 days. Now, do the entries in the excel sheet.

Sanjana: - babah, the data of 180 days ?

Arindam: - Yeah, of course. It is all about trend analysis. If you don’t take a data for six months, your predicted calculation has no value at all. But, yes, in MS-Excel, it takes some time to calculate Beta. It is very easy to calculate it on SAS 9.1.3. Now, Mohit, after entering those data in the excel sheet, you are going to find out the daily returns right?

Mohit: - Hmm…you are right. Just deduct the previous day closing price from the current price and find out the percentage of return. In an excel sheet, you just need to write its formula for once in a row and then drag it to the bottom. Every respective row will automatically calculate the percentage of daily returns. So, we have the daily returns of a security, denoted by Ri and of the Nifty, denoted by Rm.

Pratibha: - Now we need to find out the mean value of Ri and Rm respectively. Say, the means are R and M respectively. So, the summation of the product of (Ri-R) and (Rm-M) divided by 179 will give us the covariance of the security with respect to Nifty. It is denoted by COV(Ri, Rm).

Sanjana: - Wait, just hang on. Why have you divided that by 179?

Pratibha: - See, in the excel sheet, when you are calculating the daily market returns and the security returns, the first row remains vacant. It starts from the second row only. For example, if your previous closing value and current closing value are in A2 and B2 respectively, then you will get the result of their returns in the C3 row, but not in the C2 row. That is why, we are dividing the summation of product (Ri-R)*(Rm-M) by N-1, that is 180-1=179.

Arindam: - We will also divide the summation of (Rm-M)2 by N-1, that is by 179.

Sanjana: - Why we are calculating the summation of (Rm-M)2 ?

Mohit: - Very simple. We are just finding out the variance of the Nifty for those 179 days, denoted by Sm2.

Arindam: - Just divide COV(Ri, Rm) by Sm2, you will get the value of Beta. So, you don’t need to depend on any database or any broker to tell you about the Beta value of a security. You can calculate it on our own, before investing money on it. It is not that an investor always abides by the Beta value of a security before investing money on a security. He also considers the P/E ratio and the last quarter balance sheets also.

Mohit: - But, still as an investor, you can just have a rough idea about the nature of the security by calculating the Beta value. Then, you can apply this Beta value in CAPM model also to find out your expected returns.

Sanjana: - Wow, I was not aware that before investing money on a security, you need to do these kinds of calculations. My father and elder brother are brokers of Stock Exchange. Since childhood, I believed that investing on share market is just like gambling, but it is not so.

Pratibha: - Finance is a subject of probabilistic economics with a blend of socio-politics only. Anyway, today, we have learned how to “CALCULATE BETA VALUE USING MS-EXCEL.” Thanks to Arindam and Mohit to teach us about that.