Direction (Q. 1 - 10) : Read the passage carefully and answer the questions given below it. Certain words/phrases have been printed in bold to help you locate them while answering some of the questions.
CEOs of public sector banks can no longer rake in bonuses by window-dressing year-end deposits and loan numbers. For years, banks have been mopping up bulk deposits from large clients in March only to return the money in the first week of April—transactions that prop up total deposit figures for March 31.
Similarly, deals are cut to give out loans to borrowers with an understanding that they would be repaid a month later. Smart customers borrow from one bank and park the money as a deposit with another PSU bank. The circular game helps banks dress up numbers and meet targets.
This practice will now come to an end. The finance ministry has dropped annual deposit and advance growth from the list of performance targets laid down in the annual MoU that all PSU banks have to enter into with the government. From now on. banks will have to focus on the remaining parameters like net interest margin, return on assets, NPAs, fee income, priority sector loans, financial inclusion, etc.
If a bank meets all targets that are set in the beginning of the year, then the chairman and CEOs receive a bonus of ?8 lakh each. According to a senior banker, the finance ministry,in a letter to all PSU banks, said, *it has been felt that banks are under pressure to mobilise deposits to meet the statement of intent (Sol) targets and this may lead banks to securehigh-cost deposits which may affect the health of banks."
The exclusion of deposits and loans from the list of performance targets will impact the money market as well. AMCs that make a killing by parking bulk money with banks at higher rates will have to look for other investment avenues. Last week, a number of banks raised money in the range of 10.85-11.10%. P&S Bank agreed to pay I l%for?700-crore3- month certificates of deposit. 1DBI Bank raised ?4,000 crore at 11.10-11.15% and Corporation Bank raised ?2,500 crore at 11.10%. Such interest rates for short-term bulk money rose 125 bps since the RBI cut CRR in January.
"Banks have been doing this for decades. It's a customary practice and an open secret. The government has raised the issue when banks are battling liquidity crunch and a rise in sticky loans," said an analyst. The ministry seems to have taken the issue seriously. The letter adds: "Also, it is felt that banks are compelled to go all out to achieve target on credit. Sometimes PSU banks may compromise on quality of the loan proposal to achieve target for the advances, which may result in higher NPA,' leading banks to make high provision. It has been decided to drop the percentage growth in deposits and advances and market share parameter from the Sol."
Some bank treasury heads are happy with the directive. Among other responsibilities, the treasury department has to manage a bank's net interest income, interest rate risk and assetliability mismatch. In the past, treasurers had objected to top managements' decision to meet targets at the cost of margins.
What do you mean by the phrase 'rake in' as used in the passage ?