Blend monetary policy with prudential regulation






The campaign for financial inclusion must gather force, but care must be taken not to create a sub-prime culture, cautions Rakesh Mohan in ‘Growth with Financial Stability: Central banking in an emerging market' (www.oup.com). Noting that much of the informal borrowing by the poor is for purposes that should really be served through public services, he advises that better provision of health and education services is the solution, not extension of formal credit leading to excessive indebtedness.  An interesting point highlighted in the book is that at current per capita income levels in India, access to formal financial services is actually much above what might be expected from international experience, especially in the matter of access to savings facilities.

Key constraint

Adding that credit extension can, however, be improved significantly for the less well-off and smaller enterprises, the author underlines that a key constraint in credit appraisal has been the lack of readily available credit information for small borrowers. It can be reassuring, though, to learn that new technological developments enable much greater financial inclusion without sacrificing the prudential quality of the financial service providers.

Monetary policy

Apart from mentioning other challenges to the Indian financial sector – such as humongous infrastructure financing and volatile international conditions – the book is noteworthy for bringing attention to the difficulties faced by monetary policy in the face of high economic and financial growth.

Observes Mohan that there are few available models to guide monetary policy in such a context where the growth of monetary aggregates has to be high on a sustained basis but tempered by the need for preserving price stability.

Advice to RBI

His counsel, therefore, to the RBI is that it must continue its practice of consistent and harmonious blending of monetary policy along with prudential regulation; that is, continuing its dual functions as a monetary authority and a financial regulator. Valuable addition to your ‘finance' shelf for the insightful big picture that the book offers.

HBL  

Leadstart Publishing and Landmark Bookstore Host the Launch of Jayanta Ray’s Latest Book ‘Withered Leaves’, Released by the Hands of Prof. Dr. Y. V. Reddy, Padma Vibhushan Awardee and Former Governor of RBI

Leadstart Publishing and Landmark Bookstore, Banjara Hills, Hyderabad launched the latest book of Jayanta Ray ‘ Withered Leaves ’ today. Prof. Dr. Y. V. Reddy, Padma Vibhushan awardee and former Governor of RBI, was the chief guest for the function, who released the book quoting, “I could easily relate to the theme - a young middle-class Indian student going to Germany for the first time-, similar to my first visit to the Netherlands, and the flow of events thereafter.” Further, he went on to say that he was impressed with the remarkable simplicity, dignified humility and solid self-confidence of the author. The venue was packed to capacity by a mesmerised audience listening to the author’s book excerpts along with the discussions and inputs by the chief guest and other dignitaries. On the question of continuity of journey from ‘A Town by the River’ (author’s first book) to ‘Withered Leaves’, Mr. R.K. Bhattacharya, former Executive Director, BHEL, New Delhi, replied: “I could easily relate to the first one because of similar background. The second book has beautifully portrayed a young middle-class Indian student’s experience in Germany, compassion of the Schulz family and the East-West divide. Undercurrent of Nazism in the Schulz family and elsewhere have been well described”. To the question of contrasting experience of the protagonist of this novel, who comes from a background of the turbulent seventies of India, Dr. P. Ray, Formerly with IMF & now director, RBI, Mumbai, said, “Sid, the main character of the novel, is basically a freedom-loving youth and is against parochialism. The theme of freedom connects well with India & Heidelberg, his temporary home away from home. Thus, it is not necessarily a foreign town on a mental plane. Hence it is more of similarity, wherein liberal thinking is paramount.” Mr. V. Ravindran, IAS, Principal Accountant General, Andhra Pradesh and Mr. P. Nagaraju, German language specialist, also applauded quality of book publishing and the author’s efforts. The author expressed gratitude to his friends and family, his book publishers, Leadstart Publishing and Landmark Bookstore for their support.  

http://www.businesswireindia.com/PressRelease.asp?b2mid=27763

RBI committee suggests customer friendly measures

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Awaiting the reform push

The promised ‘second chapter' of reforms must reflect the Economic Advisory Council's call for a bolder and better script. Though late in the day, policymakers in New Delhi are beginning to alter their perceptions of growth in view of the mounting evidence that the economy is slowing down. The Prime Minister's Economic Advisory Council's latest economic outlook revises its February estimate of 9 per cent growth for 2011-12 to 8.2 per cent — a substantial scaling down. But, as the Council notes, given the circumstances the global economy finds itself in, that level of growth too could be considered “high and respectable.” Indeed it will be, considering the odds that are stacked against it. The global scene is so dismal that the World Economic Outlook thinks growth in the advanced countries in 2011 and 2012 will be lower than it was in 2010. The domestic scene is no less worrying; the Council introduces a refreshing note of candour in its litany of structural afflictions such as a decline in gross capital formation, “excessive government debt and political instability.” Together with the global crisis, they have “eroded business confidence, impacting asset creation adversely.” It is not entirely coincidental that Mr Pranab Mukherjee should have been waxing eloquent, at his meeting with India's key industrialists, on the steps the Government intends to take to narrow the ‘trust deficit'. Reassuring as his confidence was, it may soon lose steam if the Government does not pick up the gauntlet thrown by the Council in what could be considered one of its more forthright prognostic reviews. Reforms, it reiterates, are required to push the fixed investment rate to more than 33 per cent if the economy has to notch up 9 per cent growth. What does this suggest? Since 2009-10, foreign direct investments have not improved much more than an average of around $33 billion. The council feels FDI is important enough to suggest that the government raise the ceiling for all sectors but Defence, nuclear energy and the like. This is a significant input, a categorical assertion of a more liberal environment to supplement domestic capital formation that, as the council notes, has dipped of late. As a former governor of the RBI, Dr C. Rangarajan is aware that the opposition to a higher ceiling on bank FDI from its current 33 per cent will be vociferous — all the more because western banks have not exactly been shining examples of probity. The Council is aiming for a kind of shock treatment to galvanise policymaking that has become mired in its various problems of late. Mr Mukherjee's promised ‘second chapter' of reforms must absorb and reflect the Council's message for upgraded reforms. Not merely a second chapter but a bolder script is the need of the hour.

HBL

CCSB recommends common bank call number

The RBI-constituted Committee on Customer Service in Banks has recommended creation of a toll free common bank call number for the convenience of the customers. In its report, which was placed by the RBI on its website today, the Committee has made a number of recommendations to ease work for the customers.

* Major recommendations

The major recommendations include: Creation of a toll free common bank call number; Providing plain vanilla savings account without prescription of minimum balance; Setting up of third party Know Your Customer (KYC) data bank; Prescription of service charges for basic services and Providing small remittances at reasonable price. The committee has also recommended providing floating rate housing loans on a non-discriminatory basis, compensation for delayed return / loss of title deeds in the custody of banks, zero liability against loss in ATM and online transactions, enhancement of DICGC cover up to Rs 5,00,000, prepaid instruments up to Rs 50,000/- for frequent travelers, and differential merchant discount / fee for debit cards. Other recommendations include: Self-personalisation of cards enabling customer to fix limits / area of operation / activation for international use; Instant blocking of ATM card through SMS -BLOCK for lost / misused cards; Transition to chip based card (EMV) with photograph; Chief customer service officer (CCSO) for grievance redressal in every bank; Submission of life certificate for pensioners in any Core Banking Solution (CBS) branch; Automatic updation of senior citizen status in CBS; Financial inclusion through branch expansions in the North –East; Moving towards paperless fund transfers and Ensure fulfillment of the tenets of customer service through inspections.

* Feedback sought

Meanwhile, the Reserve Bank has sought comments/feedback from members of the public/all stakeholders on the Committee’s recommendations.
The RBI in its website said the comments/feedback may latest by August 27, 2011, be emailed or may be sent by post/courier to the Chief General Manager, Customer Service Department, Reserve Bank of India, Central Office, Amar Building, First Floor, Sir P.M. Road, Mumbai-400001 or faxed to 91-22-22630482 / 22631744.

* Background

The Reserve Bank of India had constituted a Committee under the chairmanship of Shri M Damodaran, former Chairman, Securities and Exchange Board of India, to look into banking services rendered to retail and small customers, including pensioners. The Committee was also required to look into: The system of grievance redressal mechanism prevalent in banks, its structure and efficacy and suggest measures for expeditious resolution of complaints, and functioning of Banking Ombudsman Scheme, its structure, legal framework and recommend steps to make it more effective and responsive. The committee also looked into possible methods of leveraging technology for better customer service with proper safeguards, including legal aspects in the light of increasing use of Internet and information technology for bank products and services and to recommend measures to enhance consumer protection, and the role of the Board of Directors of banks and the role of regulators in customer service matters. The Committee interacted with various stakeholders across the country on all aspects of customer service - fair treatment, improvement in the service to pensioners, attitude of the bank staff towards the small and rural customers, service charges and fees, loans, transparency in operations, grievance redressal, promptness in service, education and information on new products, services, customer rights, expectations etc.

Greater Kashmir

RBI panel for raising deposit insurance

A Reserve Bank of India (RBI) panel on banking services to retail and small customers has recommended raising the deposit insurance cover five times from Rs. 1 lakh to Rs. 5 lakh.  The committee was formed under the chairmanship of former Securities and Exchange Board of India, or Sebi, chairman M. Damodaran in June 2010 to look into banking services rendered to retail and small customers, including pensioners. Besides increasing the deposit insur ance cover, the committee also recommended the creation of a toll free common bank call number for customer redressal and also asked banks to provide plain savings account without mini mum balance.

Mint

RBI panel moots customer-centric approach by banks

Damodaran Committee submits report on ‘Customer Service in Banks'

The Reserve Bank of India panel on Wednesday recommended an increased deposit insurance cover of Rs.5 lakh so as to encourage individuals to keep all their deposits in banks. “A possibility may be explored to enable full insurance cover for bank deposits by making necessary amendments in the relevant Acts,” said the report on Customer Service in Banks chaired by M. Damodaran, former Chairman of the Securities and Exchange Board of India (SEBI). “In case of sick banks, where the accounts are frozen, a possibility to enable customers to immediately avail themselves of a part of their insured deposits before the final fate of sick banks is decided may be explored,” it added.

Home loans

The panel also recommended that banks should not impose exorbitant penal rates towards foreclosure of home loans and a policy should be devised to ensure that customers are not denied of opportunity to enhance their economic welfare by making choices such as switching to other banks/financial entities to enjoy the benefits conferred by market competition. Further, measures to stop practices of discriminating between new and old customers with identical risk profiles on the basis of interest rate offers, must also be initiated. Banks should automatically provide annual account statement to home loan customers without request from them. Such statements must contain details of payments made towards principal and interest, including principal outstanding. All home loan customers should permit a switchover between fixed to floating or vice versa at least once during the loan tenure at an appropriate and reasonable fee. Home loans backed by insurance products, in any eventuality, should be automatically settled by the insurance amount with minimum inconvenience to the nominees and heirs. The procedure should be explained upfront to the customers. The title deeds should be returned to the customers within 15 days after the loan closure and the boards of banks should put in place a suitable compensatory policy to compensate the customers for delayed return of title deeds or where there is a loss of title deeds in the custody of banks. Banks should ensure through government subsidy or insurance that educational loans are properly priced so that no bright student would be denied an educational loan.  The criteria for giving such loans should well be publicised through websites or advertisements to ensure transparency and non-discrimination in sanction. The Board Approved Policy for educational loans should indicate the minimum percentage in value or number of such loans which will be disbursed to students from rural areas. Banks may bring the possibility of switch over to the Base Rate to the notice of all borrowers concerned as envisaged in RBI circulars in this matter and also explain the benefits of switchover.

Senior citizens

There should be prioritised service to senior citizens, physically handicapped persons by effective crowd/people management available at all branches. Provision of the SMS alerts service about balance in the account at periodic intervals and about due dates for submission of important documents should be introduced. Automatic updation of the customers to the senior citizen category based on the date of birth would be introduced. Pensioner may be allowed to submit the annual life certificate at any of the (linked) branches and not necessarily at the home branch. All the life certificates may be maintained in a centralised database.

Rural areas

Banks should ensure proper currency exchange facilities and also the quality of notes in circulation in rural areas. Branches should be made functioning at a time convenient to the customers (agricultural labourers, workers and artisans), that is, morning hours and late evening hours. Exchange facilities for soiled/torn notes is a right of every citizen using such facilities and the RBI, through its agents, should ensure that no holder of sovereign currency note is turned away at a bank counter when the exchange facility is desired, irrespective of the person tendering the note is a customer or not. All banks should implement the citizens' charter on exchange facilities of notes and coins adopted by the Department of Currency Management, RBI. The bank's approach to develop ‘Client First Attitude' by its employees needs to be documented.

HBL

Train business correspondents: RBI

Mumbai: As banks are beginning to implement financial inclusion programme in a major way through the business correspondent model, Reserve Bank of India (RBI) governor D Subbaro has emphasised that the banks should train their business correspondents (BCs) before undertaking their assignments in the unbanked areas.  While reviewing the financial inclusion programmes of south-based banks on Tuesday, Subbarao pointed out that without adequate training most of the BCs will not be able to gain confidence among the locals. “The financial inclusion programme through BCs has not picked up at the required level as they are yet to win confidence among the micro borrowers. Let the banks train these BCs first before sending them to prospective customers. The training can be imparted by the banks through institution like Indian Institute of Banking & Finance (IIBF) and the cost can be borne by the banks and Nabard,” Subbarao said, while talking to the senior officials of the banks. The course fee for such training is estimated to be R4,000 per person and Nabard can refinance 75% of the fee under a special scheme being run by the institution. Some of the other issues that came up for discussion during the interaction, include ensuring strong credit linkage so as to make the ongoing financial inclusion programme more meaningful and wholesome. He said, “Merely opening no-frills account will not do”, and asked the banks to emphasise on financial transactions too. Moreover, he stressed that the banks should think of going beyond FI by selling their micro insurance and micro investment products through their branches. Subbarao also talked about financial literacy programme for the customers, said officials who were present in the meeting. KC Chakrabarty, deputy governor, RBI, was also present during the meeting.

FE

Fiscal deficit

This is with reference to “No harm in govt managing its own debt: Rangarajan” (Business Line, August 3). The Chairman of the PM's Economic Advisory Council has said that under the Fiscal Responsibility and Budget Management Act (FRBMA) the RBI is not allowed to be in the primary market for government securities and it ensures against any conflict of interest in the central bank.  The primary objective of the legislation is to forestall the monetisation of fiscal deficit. But, however, through its buyback of securities under the name of Open Market Operations (OMO), the RBI made funds available to banks to subscribe to new ones.  I have called it Debt Management Operations (DMO), the purpose of which is fiscal, whereas it should be monetary, in the case of OMO.  There were two consequences. In DMO, the RBI incurred losses. Although the government didn't receive the funds, the procedure monetised fiscal deficit. There could be a specious argument that DMO is also OMO because it relieves the market of the scarcity of funds. I haven't come across DMO operated as OMO in any developed country. Wouldn't it be more transparent if the RBI takes the new loans on its books and then releases them in the market at appropriate times instead of playing a charade of indirect support? In fact, in the distant past, this was the practice when market conditions weren't favourable for new issues.

A. Seshan, Mumbai (HBL)

TMB launches smart cards for banking in rural areas

Unveils smart card; to start mobile banking soon

Madurai, Aug. 3: Not many business correspondents (BCs) in this country would probably be as fortunate as Tamilnad Mercantile Bank's (TMB) BCs Mr T Akni, representing Karadipatti village and Ms P Chinnammal of Keelakuil village near Madurai. When they were introduced by the Chief Executive and Managing Director, Mr A K Jagannathan, at the launch of the financial inclusion programme at Karadipatti in Thiruparankundram taluk in Madurai district, the RBI Deputy Governor, Dr K.C. Chakrabarty, greeted them, exchanged pleasantries and enquired about their understanding of the job of a BC. He told the gathering that they should not stop with just opening an account but continue operating it as well. “Akni and Chinnammal are familiar to all of you,” he said and urged BCs to work aggressively and strengthen their relationship. “The branch manager was known as an agent 50 years back. Today, the BC is your agent,” Dr Chakrabarty said.

Inclusive growth

He told the villagers that it would be the responsibility of every stakeholder – the bank officials, BCs and the people of the village to take this inclusive growth forward to reach all the people. “When an individual opens a bank account, he becomes a part of the growth process. The interest earned thereon is a saving and having an account would help when the person is in need of financial support,” he said, emphasising the value of operating a bank account. In a way, the launch of the financial inclusion programme at Karadipatti Village in Thiruparankundram Taluk located about 16 km from Madurai was supposedly different from many such programmes launched in the past. As part of the financial inclusion programme, TMB launched the smart card for doing banking transaction in rural centres.  This is TMB's first major financial inclusion project. The bank has proposed to replicate this model in 31 villages this fiscal. Mr Jagannthan said the bank has got the nod from the banking regulator to start mobile banking service and this would happen within a week or so.  

HBL

Salt dearer by 25 paise after RBI withdrew 25 paise

Ranchi : With the Reserve Bank of India recently withdrawing 25 paise coin from circulation, Jharkhand government has to revise its decision from selling salt at 25 paise to 50 paise per kg to BPL families. "Now that 25 paise is not in circulation we have decided to sell salt at 50 paise per kg to families under below poverty line," Public Distribution Minister, Mahtura Prasad Mahto told reporters here today. A month after the cabinet had approved to sell salt at 25 paise per kg, the Arjun Munda cabinet had yesterday revised it to 50 paise after the RBI last month withdrew 25 paise coin from circulation.

Moneycontrol

FM to clear merger of SBI, 2 associate banks

New Delhi: As part of its banking consolidation plans, the government plans to announce the merger of State Bank of Patiala (SBP) and State Bank of Hyderabad (SBH) with parent State Bank of India (SBI) soon. Finance minister Pranab Mukherjee is expected to give the go-ahead for merging the two unlisted associate banks with SBI when he meets the bank’s management on August 6 in Mumbai.

FE

Union Bank plans 100 financial inclusion branches this fiscal

......The bank is planning to open 400 branches during the fiscal. Of them, 100 branches will be financial inclusion branches, according to Mr M.V. Nair, Chairman and Managing Director of Union Bank of India. ......

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Living in interesting times

......marketers and students of marketing should understand and appreciate the wide-ranging impact on consumers, of the change in a single economic variable — the interest rate. Any such significant change leads to consumers modifying their purchase behaviours, and throws up both challenges and opportunities which may vary across product categories. It is then up to us to leverage what works best for our markets...........

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