Shri G.Padmanabhan takes over as Executive Director

The Committee of Governor and Deputy Governors has decided to promote  Shri G. Padmanabhan, Chief General Manager, Department of Payment & Settlement as Executive Director in the Bank with effect from July 04, 2011.

Mr. G. Padmanabhan, is a Senior executive in the Reserve Bank of India, with nearly 30 years experience in various capacities in the Bank. He is a post graduate in Economics (First Class- First) from the University of Kerala and an MBA (International Banking and Finance) from the Birmingham University, UK. Areas of work experience include bank regulation and supervision, regulation and supervision of the foreign exchange market in India as also regulation and supervision of the government securities markets. He has also been the head of the Regional Office of the Reserve Bank at Hyderabad. With his exposure to Information Technology implementation within the Reserve Bank culminated in the setting up of ‘state-of-the-art’ Data Centres. Since March 2005, he is heading the Department of Payment & Settlement Systems in the Bank. The new initiatives taken recently under his leadership include the transparency in service charges for the various payment systems like RTGS / NEFT, cheques, ATM charges, etc. Guidelines on mobile banking, issuance of prepaid payment instruments, and for intermediaries have been issued to ensure orderly development of these payment systems. He has been a panel member at many of the Seminars on market issues organized in India and a regular guest speaker at many of the training colleges run by the Reserve Bank/ Commercial Banks. He was a member of the team from the Reserve Bank of India that visited Bank Negara, Malaysia, following the Asian Crisis at their invitation to have consultation on modalities on the merits various exchange controls to tackle the crisis.  He has also visited Monetary Authority of Singapore, Monetary Authority of Hongkong, Bundesbank for discussing various Central banking issues. He has presented a paper on Capital Account Convertibility- The Indian experience at a Seminar organized by the BIS and SAFE in Beijing in September 2002. He also made a presentation on India at SIBOS 2005 held at Copenhagen on the subject of “Developing economies-Transformation in action”.  He is the alternate Chairman for SWIFT in India. Shri Padmanabhan is a keen sportsman. He has represented his University and State in Tennis and continues to play the game even today.

Portfolios of EDs

Distribution of portfolios among the Deputy Governors

Heartfelt congratulations to Shri H.R.Khan



Shri Harun Rashid Khan will take over today as Deputy Governor of the Reserve Bank of India



Prior to being appointed as Deputy Governor Shri Khan was Executive Director of Reserve Bank of India since October 2007 and looked after the Department of External Investment and Operations, Foreign Exchange Department, Internal Debt Management Department and Department of Government and Bank Accounts.  He was earlier Regional Director of the Bank’s New Delhi office and prior to that he was In-charge of the College of Agricultural Banking in Pune.  Shri Khan’s central banking career spanned over 32 years during which he has discharged diverse responsibilities in RBI in areas of rural credit, currency management, banking supervision & regulation, debt management, reserve management, exchange control, personnel administration, and internal accounts of the Bank. He has been involved with major initiatives involving liberalisation and rationalisation of foreign exchange regulations, in particular, those relating to India’s outward FDI and development and regulation of the financial markets, in particular, Government securities and foreign exchange markets.  Shri Khan has been associated with number of internal and external committees, such as, Committee on Technology Exports ,Committee on Ways and Means Advances to the State Governments (as the Member Secretary), Working Group on Instruments of Sterilisation (as the Convener), International Task Force on Central Counter parties(CCPs), Working Group on Model Fiscal Responsibility and Budget Management Bill for States (as the Convener). He was closely involved with the Internal Group of RBI on Rural Credit and Microfinance (popularly known as the Khan Committee) as the chairman.  Based on the recommendations of the Khan Committee, the Reserve Bank issued guidelines to expand the banking outreach through the Business Facilitators and Business Correspondents with ICT support for spearheading financial inclusion in the country. As Executive Director, Shri Khan represented the Reserve Bank on the Working Group on the G-20 on “Reinforcing International Cooperation & Market Integrity” and the Committee on Global Financial Systems (CGFS) of the Bank for International Settlement (BIS). Shri Khan was also the Nominee Director of RBI on the boards of Dena Bank, Bank of Maharashtra, Punjab and Sind Bank, Bank of Rajasthan and the Orissa State Finance Corporation (OSFC).  Shri Khan currently represents RBI on the Board of the Export Credit Guarantee Corporation of India Ltd. (ECGC).  Shri Khan joined Reserve Bank in 1978 after his Masters in Political Science from Utkal University, Bhubaneswar and Masters in Philosophy from the School of International States, Jawaharlal Nehru University, New Delhi.  Shri Khan is a Certified Associate of the Indian Institute of Banking and Finance (CAIIB). He holds Diploma in Business Management (DBM) and Diploma in COBOL Programming.  He married to Rosy and has one daughter, Sara.   

H R Khan becomes next RBI Deputy Governor

New Delhi, July 3: Shri H. R. Khan will assume charge of the office of the Deputy Governor in the Reserve Bank of India (RBI) on July 4, 2011. Shri Khan has been appointed as Deputy Governor for a period of three years. Earlier on May 13, 2011, a Government appointed search committee headed by Governor Dr. D. Subbarao, and comprising members- Shri Shashikant Sharma, Secretary, Department of Financial Services, Ministry of Finance, Dr. M. Govinda Rao, Director, NIPFP, Shri S. K. Barua, Director, Indian Institute of Management, Ahmedabad and Smt. Alka Sirohi, Secretary, Department of Personnel and Training, Ministry of Personnel, Public Grievances & Pensions, had interviewed the seven Executive Directors for selecting a successor of Smt. Shyamala Gopinath, whose term as Deputy Governor ended on June 20, 2011. The committee had recommended the name of Shri Khan for the post. As Executive Director, Shri Khan had the charge of departments like Department of External Investments & Operations, Internal Debt Management Department, Department of Government and Bank Accounts and Foreign Exchange Department.. He was appointed as Executive Director of the Reserve Bank on October 26, 2007 and prior to that he was the Regional Director of New Delhi Office and Principal, College of Agricultural Banking, Pune. Born on July 29, 1954 in Puri District of Odisha, Shri Khan completed post graduation in Political Science from Utkal University and M.Phil in International Studies from Jawaharlal Nehru University (JNU), New Delhi. He is a Certified Associate of Indian Institute of Banking and Finance (CAIIB) and holds a Diploma in Business Management from Narsee Monjee Institute of Management Studies (NMIMS), Mumbai. Shri Khan started his central banking career in 1978 as a Probationary Officer. Since then, he has several accomplishments to his credit while working in various departments and regional offices in the Reserve Bank. Over the last three decades, he has worked in various areas, such as, Personnel and Administration, Banking Regulation and Supervision, Rural Planning and Credit, Currency Management, Exchange Control, Internal Debt Management and Training Establishment and at Centres like Mumbai, New Delhi, Bhubaneswar, Hyderabad and in the Central Office, Mumbai and the College of Agricultural Banking, Pune. Some of the important positions that Shri Khan held during his career included, Nominee Director of RBI on the Boards of the Orissa State Financial Corporation (OSFC), the Bank of Rajasthan, Dena Bank, the Bank of Maharashtra and the Punjab & Sind Bank. Shri Khan was associated with various committees, such as, Committee on Technology Exports (GOI/DSIR), Ways and Means Advances to the State Governments (as the Member Secretary), Working Group on Instruments of Sterilisation (as the Convener), International Organisation of Securities Commission (IOSCO) and the Committee on Payment and Settlement System (CPSS) of Bank of International Settlement (BIS) Task Force on Central counter parties(CCPs), Working Group on Corporate Debt, Working Group on Primary Dealers and Working Group on Model Fiscal Responsibility and Budget Management Bill for States (as the Convener). He was also involved with the Internal Group of RBI on Rural Credit and Microfinance as the Chairman (popularly known as the Khan Committee). Based on the path breaking recommendations of the Khan Committee, the Reserve Bank issued guidelines to expand the banking outreach through the Business Facilitators and Business Correspondents with ICT support for spearheading financial inclusion in the country.  As Executive Director, Shri Khan represented the Reserve Bank on the Committee on Global Financial Systems (CGFS) of BIS and the Working Group of G-20 on “Reinforcing International Cooperation and Market Integrity”. As part of his international exposure, he has attended Central Banking Courses organised by the Bank of Korea and the Federal Reserve Bank, New York, Course on Financial Markets by the IMF Institute, Singapore, participated as the Central Bank’s representative in the meetings of BIS-IOSCO Committee in Madrid, Rome and London and attended Professional Programme on Management of Training Centres, Asian Institute of Technology (AIT Extension), Thailand. Shri Khan has also presented papers in various national and international conferences.

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A feedback without reserve on VITALINFO

    

Reforming in deposit insurance

The author has devoted a good part of the article “Cracks in the financial edifice” (Business Line, July 2) to the need for revamping the Deposit Insurance and Credit Guarantee Corporation ( DICGC) and bringing about reforms in deposit insurance. An Expert Group, constituted by the Reserve Bank of India on the subject, of which I was a member, had made these recommendations in its report submitted 11 years ago! The article could be taken as an endorsement of the recommendations made by this Group. Subsequent to the submission of the report and its acceptance by the RBI, a communication was also sent to the Ministry of Finance, Government of India. I gather that after my retirement from the RBI, a team consisting of the officials of the central bank and the Ministry of Finance had gone on a study tour abroad, when they had the opportunity of looking into the detailed working of the Federal Deposit Insurance Corporation of the US. On the basis of the findings of this study tour, further recommendations would also have been sent to the Ministry of Finance.  It is a pity that even after a decade of these developments, revamping of the DICGC has not happened. The less said about the present role (of which enough can be known from the article) and the staffing of this Corporation, the better. I have noticed that whenever a new Deputy Governor was appointed, the portfolio of the DICGC was transferred to him, which gave an unmistakable impression that this portfolio is not meant to be taken seriously. This perhaps explains as to why there has been no forward movement in regard to DICGC.

A.Chandramouliswaran, Executive Director (Retd), Reserve Bank of India

Chakrabarty wants an encore in mobile banking

MUMBAI: Reserve Bank Deputy Governor K C Chakrabarty has called for an encore of the mobile revolution in the banking space and said if banks adopt technology appropriately, it can easily be done.  "If technology is adopted appropriately, banks can also do a mobile-like revolution. But what worries me is that it is not happening as yet," the senior-most deputy governor overseeing banking supervision, rural credit and customer service at the RBI told PTI in an exclusive interview here.  He was answering to a query on why the central bank is repeatedly asking banks to bring down their net interest margins at a time when banks are mostly rated on the basis of their NIMS.  "We are not asking the banks to sacrifice their profits or return on equity. What we want them is to bring down their cost of operations by bringing in technology and then charge less from customers," he said and pointed out that wherever technology has been used massively, the price has come down.  With an average NIM of 3-3.5 per cent, the RBI feels that it is one of the highest in the world and wants banks to bring it down by offering higher deposit rates and lower lending rates. In developed markets, the NIMS is usually very low and ranges between 1 and 2 per cent.  Net interest margin, or NIM, is the difference between the interest a bank earns from it assets and the interest it pays on its deposits or liabilities. The higher, the difference between the two the higher will be the NIM.  As a first step toward this, in its May 3 annual monetary policy, RBI raised the interest rate on savings deposits by 50 basis points to 4 per cent. Though fixed deposits attract close to 10 per cent, the average lending rate is around 15 per cent.  But when queried how far technology can make services cheaper as the cost of technology is also on the rise by the day, he quipped, "It simply means that you don't understand technology. People who say tech is costly are those who do not understand it in the real sense.  "A technology is that which can be used to serve the masses. Look at how telecom technology has changed the world. When cable was introduced between London and New York, the cost was a USD 300 a minute and what is it now you know very well," he said.  If banks have used technology appropriately, their costs would come down and customers would get funds at lower rate of interest and services at lower charges, he said and wondered, "If it can happen in every other area, why not in banking, I don't understand."  He further argued that if the cost per unit is going up for banking technology products, the volume will be so high that the overall cost of delivery can be brought down much lower from the present high levels, he concluded.

ET

Credit growth may slow over 12-18 months: HSBC

Kolkata: Amid signs of an economic slowdown, high interest rate may impact credit growth and net interest margin of banks in a year’s time, with credit growth this year at par with expectations at 18-20 per cent, said Naina Lal Kidwai, country head, HSBC, here today.  To tame a persistently high inflation, the Reserve Bank of India raised interest rates for the tenth time since March 2010. It raised the repo rate by 25 bps to 7.5 per cent in its last monetary policy.  “Credit growth, this year, will continue to be at 18-20 per cent. But the problem is what happens later because this year we have projects which have already been sanctioned previously, so people are continuing to complete that. However, high interest rates in the yield today will impact investment decision for tomorrow. Thus, credit growth down the line may slow down if investment indeed slows down,” she said on the sidelines of an industry meet here today. HSBC expects the GDP growth rate this year to be slightly lower than eight per cent, which is lower than Planning Commission Deputy Chairman Montek Singh Ahluwalia’s estimate of 8.2-8.5 per cent. “At HSBC research, our view on GDP is that it will be lower more like eight per cent over the next year, so that would indicate the GDP is slowing,” said Kidwai. Corroborating Kidwai’s view, Kalpana Morparia, chief executive officer of JPMorgan said she expected the GDP growth rate to be little less than eight per cent, with credit growth at 18-20 per cent. “We expect the GDP growth to be a shade under eight per cent,” said Morparia. So far, the impact of high interest rates have not been visible on non-food credit growth. According to RBI data, on a year-on-year basis, non-food gross bank credit increased by 21.9 per cent in May this year, compared to 18.1 per cent in the corresponding period of 2010. However, credit to agriculture on a y-o-y basis increased by 12.8 per cent in May, compared to 21.0 per cent in the previous year. Food inflation fell to a one-and-a-half month low of 7.78 per cent for the week ended June 18 on the back of cheaper vegetables, pulses and potatoes. High interest rates would impact net interest margin of banks, said Kidwai “At this moment there is no pressure on margins, but when both lending and deposit rates are going up, matching becomes important. If beyond a point we cannot pass on the interest-rate hike to consumers, then banks will see a squeeze in margins going forward.”  This apart, corporates might also see pressure on margins due to rising commodity prices. “Margins will not be a function of interest rates but margins are under pressure because commodity prices have increased, prices will be under pressure because of power prices having gone up and margins will be under pressure also because of interest rates. So I would say by and large there would be pressure on corporates in terms of margins,” she said.

BS 

RBI says it's not an immediate concern

The Reserve Bank of India (RBI) has said that the Met department forecast for a sub-normal monsoon is not a serious concern. According to the second revised forecast, the Met Department on Tuesday had said that monsoon rains are expected to be 95 per cent of the long-term average of 50 years — down from the April forecast of 98 per cent. Rainfall between 96-104 per cent is considered normal monsoon. “The impact of it would be a function of what’s the regional spread of it. And one element of the forecast was that in the pulses and oilseed zone, there will be 94 per cent rains. Regional forecast tend to be that much more inaccurate. Going by the monsoon forecast, I do not think there is any immediate concern in terms of prices of these commodities which have been the stress point for the last couple of days,” said RBI Deputy Governor Subir Gokarn. When asked about the impact of the Greece crisis, Gokarn said: “The resolution of the Greece situation will clearly reduce some of the uncertainties surrounding the Euro zone economy. But there are other risk factors also. The US is also showing some signs of moderation. So, it is not confined to Europe. It appears to be a broad-based weakening of the momentum what we saw in the first quarter.” “We are looking at the impact it will have on various factors including the commodity prices. We have seen some softening of prices in the past few weeks. If that continues, it will change the overall inflation scenario somewhat.” However, Gokarn was quick to add that it was too early to take a firm call on this. “It could also impact capital inflows, that’s something we just have to wait and watch — how different developments in different parts of the global economy impacts capital inflows.” With rising interest rates, the deputy governor said the spread between the deposit growth and credit growth was declining. “Banks’ credit growth should be expected to slow down. We expect the deposit rates to go up which has been happening. So the wedge between deposit growth and credit growth which had peaked at around 9 per cent before our January policy is now a little less than five per cent,” Gokarn added.

BS

SBI-BOM Credit Card launched

Absence of regulator mars property valuations

RBI has also pointed to a nexus between independent valuers appointed by banks and a section of real estate developers, which is never ideal. All these issues are threatening the health of the financial ecosystem and are primarily due to the lack of any regulation or standards that valuers are required to follow.......

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Pranab to meet PSU bank chiefs on July 8

Finance Minister Pranab Mukherjee will hold a review meeting with the heads of public sector banks and financial institution in the light of rising interest rates and concerns of slowdown.  The meeting will take stock of the financial performance of the banks during the financial year ended March, 2011.  It would also dwell upon credit flow to the productive sectors, sources said. The Finance Ministry will deliberate on non-performing assets, agriculture loan, credit to infrastructure sector and matters related to human resources in the public sector banks, they said. In addition, bankers would also voice their concern and fear on economy and subsequent impact on their business. Heads of public sector financial institutions like the Nabard, Sidbi, NHB, IIFCL and Exim Bank would also attend the meeting. One of the key focus of the meeting would be on providing banking facility in unbanked areas. The Finance Ministry would seek information about the progress on financial inclusion front carried out by individual banks. Banks would also provide banking facilities to habitations having a population of over 2,000 by March, 2012. The banks have identified about 73,000 such habitations for providing banking facilities using appropriate technologies, he had said. “A multi-media campaign, Swabhimaan, has been launched to inform, educate and motivate people to open bank accounts. During this year, banks will cover 20,000 villages and remaining will be covered during 2011-12,” he had said. Last year, Finance Minister had conducted regional meetings, which were attended by PSU bankers along with the concerned Chief Ministers. This was with the objective to better understand state- wise flow of credit to the agriculture sector, credit-deposit ratio and loan to weaker section of society among others.

BS 

Central Law must for orderly growth of MFI sector: Chakrabarty



RBI calls for Central Law for MFI



Mumbai: The senior-most Deputy Governor of the Reserve Bank, K C Chakrabarty, has called for Central legislation to regulate the troubled microfinance sector as in its absence, states will be free to take action that may nullify the Centre's efforts for a uniform policy. If we don't act under a common set of regulations, it won't be practical to work. Five states having five different laws on the same subject will have practical difficulties for the industry. But if still some states want to act differently, I cannot stop them. They are sovereign in their territories. "Till a central law is in place, the Andhra type situation can arise again and will nullify what the Reserve Bank is doing to properly regulate them," Chakrabarty told a news agency. His comments come on the heels of media reports saying the Centre has left the troubled MFI industry to fend for itself and has put the plan to enact a central legislation on the backburner. The Rs 20,000 crores microfinance sector was thrown into a tizzy last October when Andhra Pradesh issued an Ordinance that sought stringent regulation of the industry, following reports of a spate of suicides by harried borrowers. Andhra is the largest MFI market in the country, with over 60 per cent of total business taking place there. Following this, loan recovery slowed to a trickle and banks also refused to offer fresh funds to MFIs. Then a worried RBI set up a committee under the chairmanship of noted chartered accountant Y H Malegam, who submitted his report early this year.  The report recommended capping MFI interest rates at 24 percent, banned MFIs from lending to the individuals that have already borrowed amounts and banned coercive loan recovery by agents, among other things.  On the overall situation in the MFI space since April, when the RBI implemented some of the proposals of the Malegam panel report, such as capping interest rates, he said, "They have at least survived the crisis. Also, luckily the problem has not gone out of control and out of Andhra." Stating that one has to wait and see how the situation evolves, Chakrabarty said since the RBI has created a framework for MFIs and has issued guidelines to them and asked banks to resume lending, he hopes it will improve now.  "There is also an agreement to restructure the debts of MFIs and banks also have assured us that they will start funding again," Chakrabarty, who looks after MFIs at the Central Bank, said. Clarifying that the RBI is not in conflict with any state, Chakrabarty said, "What we said is that what Andhra wants is being taken care of by the Malegam report. But a state is sovereign and RBI cannot stop it from regulating entities operating in it. But such steps will affect the smooth operations of MFIs." On whether he has received any communication from Andhra, he said, "Why should they get in touch with us? I have not written to them, nor have they written to me. There may be certain areas where more coordination is possible. All I am saying is that let the system be first stabilized, after which we can look at the pending issues. But states are sovereign and are free to do what they feel like doing," he concluded.

Jagran Post

Microfinance firms asked to be ‘fair’ to the poor

Mumbai: It’s back to basics for the Rs. 20,000 crore Indian microfinance sector as industry lobby group Sa-Dhan, which counts at least 250 microfinance institutions (MFIs) as members, has asked all such firms to deal “fairly” with debtors and avoid coercion in collecting dues. The association will in the next few weeks discuss compliance issues with individual MFIs, Sa-Dhan executive director Mathew Titus said. “The effort is to move towards a new regulatory regime,” he added. Sa-Dhan’s proposed code of conduct, which has been circulated among members, says recovery officers of MFIs should avoid “confronting the clients or their family members under any situation” and the staff should “not enter the house of the client for recovery of loans”. MFIs should also not insist on repayment “in case there is severe illness in the family of the clients”.  The code needs to be approved by the boards of individual companies. MFIs extend tiny loans to poor borrowers, typically for a year, at around 24% interest. The industry is facing a crisis after Andhra Pradesh, which accounts for a quarter of the domestic microlending market, passed a strict law in October to regulate MFIs following reports of coercion in recovering loans that allegedly led to suicides. Loan repayments have since fallen drastically to around 10% for most MFIs, including the country’s largest and only listed microlender, SKS Microfinance Ltd, and Basix group-promoted Bhartiya Samruddhi Finance Ltd, both of which are based in Andhra Pradesh. SKS and Basix saw at least one-fourth of their loan book shrinking in the past nine months. Most MFIs have had to stop fresh loans. Commercial banks, too, stopped lending to these firms, adding to their woes.

The latest development on self-regulation has coincided with a meeting Sa-Dhan held last week with Reserve Bank of India Deputy Governor K.C. Chakrabarty and chiefs of large commercial banks in Mumbai to discuss urgent resumption of fresh funding to the ailing sector that is facing severe cash crunch. At the meeting, microlenders assured commercial banks they will stick to the code of conduct and avoid resorting to any harsh practices or discriminate against borrowers based on caste or religion. Chakrabarty asked lenders to restart lending to the sector considering the larger goal of financial inclusion, according to a person who attended the meeting. “We told them (banks) we will ensure compliance (of best practices). We will repay. I do hope they will start lending now,” said the person, who did not want to be named. Sa-Dhan has also assured banks that MFIs will be transparent in their operations and supply information on customers and business through a credit bureau. The association has asked its members to report their business details to credit bureaux. Indian banks have lent a minimum Rs. 14,000 crore to the industry with Small Industries Development Bank of India and State Bank of India (SBI) having the largest exposures. Senior bankers, however, made it clear they will not lend to MFIs unless they are convinced that unfair practices do not occur again and operations become more transparent. “They have to convince all stakeholders—banks, regulator and customers—that they have changed their behaviour,” said an SBI official. “If they continue to do what they do now, then things can again become difficult for them,” the banker said, requesting anonymity. Titus is optimistic about changes in the industry and the approach of microlenders to customers. “Our findings indicate there is a scope of improvement on aspects of the code of conduct as well as strengths to be built on,” he said. “What we are telling MFIs is that they should bring in training programmes to improve the staff behaviour,” he added. Although 87% of MFIs have guidelines on staff behaviour, only 20% of them carry out internal audits on field staff behaviour, according to a social performance study conducted by Sa-Dhan. “Since many complaints are coming from clients on unethical staff behaviour, internal audit assumes importance and needs to be carried by all MFIs,” Titus said.  As far as avoiding over-indebtedness is concerned, 63% of MFIs conduct client appraisal before giving fresh loans, but only 39% of them assess client indebtedness to other institutions, which has emerged as a major criticism of the sector, he said.

Mint 

Bank security rules to boost tech spending

Bangalore: Latest RBI guidelines on banks' technology governance, information security, audit, outsourcing and cyber fraud could open up a $300-million opportunity for IT vendors and audit firms. The central bank recently directed IT governance frameworks, data leakage prevention, encryption, multi-factor authentication and digital asset archiving mechanisms for banks. The RBI working group's April 29 recommendations on information security and electronic banking will spur investments in software products, consulting, system integration and IT services. Market-watchers said the guidelines liberalise vendor qualification criteria in some respects, lowering entry barriers for tier II and maybe even tier III players into public sector banks. While estimates on actual banking spending vary, experts said the rules, to be implemented in a year, could boost a bank's technology spending in the near term by approximately 30%. For IT services firms, the RBI mandate presents opportunities in IT strategy, information security, business continuity, disaster recovery, and information security audit, Ramanath L Ram, vice president of India and Middle East Consulting at Wipro Infotech noted. “Some guidelines that were issued earlier will also be used along with the new ones. Since RBI has come up with a specific time frame of one year, more banks are expected to go for implementation or would be looking to speed up existing initiatives,” he said.

FE

Inflation- Indexed Bonds for Senior Citizens – S.S.Tarapore

It is recognized that inflation devastates Senior Citizens the most as they have no protection against inflation. A small proportion of the working population is covered by some kind of cost of living adjustments but the majority is defenseless against the scourge of inflation. Senior Citizens depend on the earning from their meagre savings. When the real value of their savings is eroded, they have nowhere to go. A Senior Citizens Savings Scheme is presently available, under which a deposit is placed with the government for five years at an interest rate of 9 per cent per annum, for a maximum amount of Rs 15, lakh. Let us assume that the average inflation rate is 7 per cent per annum. Since Senior Citizens can avail of this facility at the age of 60 years, by the time he is 65 years old a capital sum of Rs 100, in real terms, is reduced to Rs 71 and at age 70 the capital, in real terms, would be only Rs 51. If the Senior Citizen lives till the age of 75 years, the real value of the capital is reduced to Rs 36. No wonder Senior Citizens are very quickly reduced to penury. An amount of Rs 15 lakh, at 9 per cent per annum would generate an annual income of Rs 135,000 or Rs 11250 per month. At today’s cost of living this is by no means a luxurious income. Moreover, with inflation at 7 per cent per annum the Senior Citizen earns a return of only 2 per cent in real terms; in other words, in real terms, the Senior Citizen’s income is even lower. The issue of an Indexed Bond has been discussed in India for over 15 years. In the 1990s, an excellent study by the Reserve Bank of India (RBI) Development Research Group ( DRG) was prepared by Dr. Vikas Chitre and others. While this was examined by the government, one of the top policy advisers of the government shot down the proposal as he believed that the authorities would not be able to contain inflation and, as such, the Indexed Bond would be very costly for the government. In addition, it was felt that such a scheme would be infectious and indexation would become all pervasive. The bogey was raised that the Indian authorities could fall into a situation akin to the Italian Scala Mobile  (sliding scale inflation adjustment) in the 1970s and 1980s under which everything was indexed and this generated massive inflation. The issue of an Indexed Bond was revived, in India, in 2003 under which there was to be an Indexed Bond called the Dada- Dadi Bond ( note the gender bias!). With the change in the Central Government in 2004, this proposal was given a quiet burial. It is paradoxical that government economic policy Pundits recognize the need for inflation adjustment for employees of Central and State Governments, public sector units and the corporate sector yet they express grave concerns if Senior Citizens are protected. Some policymakers have rightly diagnosed that India may have shifted from the earlier norm of a tolerable rate of inflation of 5 per cent per annum to a new norm of 7 per cent per annum. Pious pronouncements are made by policymakers that inflation must be controlled but this is tempered by the strongly held view that anti- inflationary policies should not affect growth. If an enduring high rate of growth is the objective this can only be attained under a regime of low inflation rates. To hope that high growth rates would be sustained without strong anti- inflationary policies is wishful thinking. How should Indexed Bonds operate? Experts rightly argue that if the real rate of interest is higher than the real rate of growth of the economy, the growth rate will fall. Almost all macroeconomic projections point to a medium- term growth of the economy of 8 per cent plus. It is nobody’s case that the Index Bond should carry an assured 8 per cent real rate of interest. As a starter, it would suffice if we provide for a 4 per cent real rate of interest, which would be very modest in the context of an average real rate of growth of 8 per cent. Like the present Senior Citizens Savings Scheme, the Inflation Indexed Bond should have an investment ceiling of Rs 15 lakh. The inflation adjustment could be done on the basis of the inflation rate in the previous year. If the real rate of interest on the Indexed Bond is 4 per cent and the inflation rate is 7 per cent the bond holder would be paid a rate of 11 per cent. If the inflation rate is say 4 per cent the Bond holder will receive 8 per cent. It would be necessary to specify the specific inflation index i. e. the Wholesale Price Index (WPI) or the Consumer Price Index ( CPI). If the inflation rate averages 7 per cent, on maturity the Bond holder should receive Rs 140 for an initial investment of Rs 100. In other words, the Bond holder should be protected for both the income stream as also the capital value of the investment. An Inflation Indexed Bond would be a strong assertion by the authorities of their intention to bring about an enduring reduction in the inflation rate. Such a scheme would be a strong incentive for the government to bring down inflation. Denying Senior Citizens protection against inflation would not be reflective of a caring society. The time has come for the government to bite the bullet and introduce an Inflation Indexed Bond for Senior Citizens.
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(Sheila ki) chavanni

It was not very long ago that I used to be the darling of the people. I was light, with a smooth round edge, not big enough to be a burden, not small enough to be almost worthless. I was not really worried, especially when there was talk about Rs 500 and Rs 1,000 currency notes being taken out of the system. Truth is, I even chuckled at the thought of seeing those big paper notes being hauled down from their pedestal. But what I had failed to notice was that in the new economy and with high inflation, people had stopped using me. I have been, truth be told, invalid for some time. But still, when the Reserve Bank of India official came over to my place last week to tell me that I was retiring — at 54! — I was shocked and felt betrayed. After 54 years of service to the nation, they’re now putting me in the Great Coin Pile.  Thirty years ago when I was a young man, I was a 25 paise coin who got you plenty of things. I would get you a satisfying cup of hot tea, or a plate of hot, steaming pakoras, or even a paratha, thick and spicy enough to fill your stomach and inject you with energy for the whole day. For those with a sweet tooth, you could barter me for a cup of ice cream or a pocketful of sweets. In Delhi, I was particularly loved by those folks who went around town in buses. With me in their pockets, they could go anywhere in the city and meet their near and dear ones. They could also exchange me for a few select gifts — yes, cheap and small, but nonetheless special, for you could still get those small plastic toys for my value. I actually quite like my nickname ‘Chavanni’ — from 'char anna' (four annas) from the old British Indian monetary system. I should have realised that my days of walking about unfettered and in demand were going to be over when I started hearing less and less people asking for a 'Chavanni'. But since I love you folks as much as you once loved me, I will be around and you may see me on the footpaths of Chandni Chowk and in the albums of coin collectors — or as the old (bless his soul!) — one anna coin would call these people, numismatists. The RBI says I have been 'demonetised'. I don't like that word. It has something a bit demonic about it, not to mention carrying the vague notion of all life being extinguished from me. Economists say that my death — I mean retirement — is a telling reflection of the state of the Indian economy. Some of my remaining supporters try to argue that my disappearance from active life would affect the poor as from now on, there won't be — can't be — any item priced 25 paise. But even I know the truth: nothing has been worth 25 paise for a long time now. To get a toffee or a mouthfreshner from the paanwala, it now takes at least two of me. With my departure, the 50 paise coin moves into the frontline, becoming the smallest currency. Well, at least now I'll be joining my old pals who were put out to pasture over the last many decades: the hexagonal 20 paise coin, the undulating rim of the 10 paise coin, the sideways square of the 10 paise coin. The 1, 2 and 3 paise were phased out in the 1970s and, to tell you the truth, I don't quite recall their faces anymore. After all these years of service, only one man in the country has bothered to criticise the decision to take me out of the system: Gujarat chief minister Narendra Modi. He has said that the central government has sacrificed a poor chavanni as it couldn't take out the mighty Rs 1,000 notes as demanded by those fighting against black money. Oh well, goodbye and all that. I bet you won't get a smoother-edged, classier-looking coin than me. I bet you 25 paise you won't.

Hindustan Times 

25-paise coin

From July 1, another small coin disappeared from circulation. I am left with the memories of the good old days when the 25-paise coin was able to work wonders. My brother and I worked hard to collect the neem nuts in our backyards. We used to sell them and get 25 paise each. We would then walk up to 4 miles to see a film. Tickets were priced at 25 paise in touring cinemas. Our father used to give us an extra 10 paise to buy some snacks during the interval. Up to the last day of its circulation, the 25-paise coin had its use — it could buy me a packet of betel nut.

P. Poovalingam, Tirunelveli

That the value of money has declined significantly is evident from the fact that 25 paise is now just a piece of metal with no value. Though this may not be sensational in itself, it may the pave way for the decline of 50 paise, and one-rupee and two-rupee coins. The value of one rupee before seven or eight decades is comparable to Rs.100 today.

Ishwarya Chandrasekar, Srirangam

The 25-paise coin became obsolete long ago. It was first felt when beggars refused to take it. In market transactions, even 50-paise coins are rare. Both the buyer and the seller can afford to forgo the small change. The days of the 50-paise coins are also limited.

Gokul Burman, Nadia

No doubt, all of us have lots of stories and memories about the quarter of a rupee or charana. But we need to be practical. What can one get for 25 paise today? Not even a cup of tea from a street vendor. It is at least a decade since shops and establishments in Bangalore stopped accepting the coin. Let us move ahead, not retreat.

C.K. Saseendran, Bangalore

(Business Line) 

Raise our monthly pensions: RBI Unions

NAGPUR: The employees' unions of Reserve Bank of India demand equal pension benefits on par with those of their counterparts working in central government departments. A chalking-a-strategy meet organized by joint body of all the unions operating in the country's apex bank is to be held on July 7 in Chennai, which in later stages would be followed by a protest march on Tuesday. There is a special stress on increasing the family pension, a dole given to the dependent spouse after the employee's death. The family pension in RBI does not go more than Rs 7,688 a month for even for a senior officer's kin, which is too less to compare it to the rising cost of living, say unions. Family pension beneficiaries in RBI are expected to run in a few thousands. "RBI has enough funds to increase the pension but the government is creating a hurdle. It feels that unions in other financial institutions may raise a similar demand too but there are some organizations which cannot afford a pension revision," alleged Secretary of All India RBI Employees Association (AIRBIEA), Bidyut Chakraborty. However, RBI unions contend that if the central government employees get a benefit even without any specific provision of funds, why should not those serving the apex bank. The pay commission has increased family pension to 30% of the last drawn pay. The unions say RBI has a corpus of Rs 5,000 crore as collections towards provident fund. A part of it can be easily diverted to pension payment. At RBI, the dependents of senior officers get a maximum pension of Rs 7,688 a month which is Rs 23,604 in the case of central government. The minimum monthly family pension for an RBI officers' dependent is Rs 5,533 which is Rs 16,599 in the case of a central government employee. It is worse for the Class IV workers where the family pension does not exceed Rs 3,715 a month while their counterparts in central government get a maximum pension of Rs 11,145 per month, he said. Chakraborty said the union has demanded a second option for pension too. There are around 2,000 RBI employees who did not go in for pension option the first time and many of them want to change their decision, added Chakraborty. A second option will enable them getting a monthly pension payment or else a lumpsum provident fund is handed over. The pension is paid from the bank's contribution towards an employee's PF.

TOI

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Worrying credit pattern

Data released by RBI show that the farm sector has trailed the non-food sector in credit growth. That would not appear unusual since industry and services are the driving force of economic growth and banks would want to seek ..............

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