A policy reading of RBI's books - K. Kanagasabapathy

Since 2008, there has been a shift in the RBI's asset holding towards domestic assets, after the bank reduced its intervention in the forex market. The RBI has started to earn on liquidity operations by keeping the system in deficit mode.

The Reserve Bank of India (RBI)'s annual report released in the last week of August for the year 2010-11 (ending June 2011) shows that its total income increased by Rs 4,186 crore or 12.7 per cent to Rs 37,070 crore, from Rs 32,884 crore in 2009-10. This is indeed a heartening development after the Bank's income sharply fell by Rs 27,848 crore or by 45.9 per cent in 2009-10. The two major components of the Bank's income are earnings from foreign sources and earnings from domestic sources. The report adds that the increase in income from domestic sources by Rs 8,138 crore more than offset the decline in income from foreign sources by Rs 3,953 crore.  As a matter of fact, the income from foreign sources declined over the last three years since 2008-09. It will be of interest to examine how the income of the RBI behaved over the decade beginning 2001-02, distributed as between domestic and foreign sources.

Domestic, Foreign Sources

One factor that determines the income is the asset base. The other factor is the return available from these assets. While the domestic assets comprise mainly central government securities, the foreign assets comprise foreign currency assets and gold. The return is mainly a function of the level of domestic and international interest rates. India does not have a fully open capital account and, overall, domestic interest rates were ruling generally higher than international interest rates over the decade. The balance-sheet of the Reserve Bank expanded significantly during 2010-11, mainly reflecting the impact of liquidity management operations undertaken by the Bank.  There was a significant increase in Bank's portfolio of domestic assets in the form of government securities on account of open market purchases, repo purchases and disinvestment of Government of India's surplus balance parked with the Reserve Bank. The increase in foreign currency assets mainly reflected the valuation effect on the portfolio.  The annual report rightly claims that the assets and liabilities reflect the outcome of its operations, guided by the overall policy objectives relating to the economy and the financial system, and not by commercial considerations. Two such important developments in the policy in the recent period affecting the income of the Bank need to be highlighted. First, the RBI has not been actively intervening in the foreign exchange market and has stopped significantly accumulating foreign currency assets since late 2008. There is, therefore, a perceptible shift in asset holding in favour of domestic assets. While domestic assets increased by 38 per cent in 2010-11 on top of a 104 per cent increase in 2009-10, the foreign assets depicted an overall decline since 2008-09. As a result, the share of domestic assets increased from 11.2 per cent in 2007-08 to 29.7 per cent in 2010-11. Second, is the strategic changes that have been introduced in the operating procedures of monetary policy.  One significant element of this policy has been the decision to keep the system generally in deficit mode to achieve a better transmission of policy rate signals of the Bank. This precludes the need of the Bank to absorb enormous surplus liquidity at a cost, and conversely enables the bank to earn on its liquidity management operations. These two changes in a nutshell would also mean that the sterilisation costs are minimised. In fact, the level of market stabilisation securities has been reduced to zero currently.

The Decadal Trend

The income of the Bank showed volatile movements. On a cumulative basis, since 2001-02, the income increased only by Rs 15,221 crore, the domestic sources contributing Rs 4,156 crore and foreign sources Rs 11,065 crore (Table). For policy reasons and because of the interest rate differential, the return on domestic assets had generally been higher than that of foreign assets, barring two years, 2004-05 and 2005-06. The return on foreign assets touched its lowest in the last two years. Foreign sources contributed to larger share of income, not because of higher return but because of the predominant share of foreign assets in the RBI's portfolio, touching as much as 89 per cent in 2008-09. The counter-factual is that, perhaps, in the place of these assets, domestic assets would have earned a higher income. But, what needs to be kept in mind is that overall policy considerations required the RBI's asset management policy to keep that level of foreign assets during the critical years that helped tide over the crisis situations smoothly. The RBI's operations and policy should, after all, never be viewed from a commercial angle. The operating procedure of monetary policy in India has witnessed significant changes since the beginning of the 1990s, thanks to developments in the money market and changes in liquidity conditions brought about by financial sector reforms. In this process, the LAF, introduced in June 2000, emerged as the principal operating procedure of monetary policy, with the repo and the reverse repo rates as the key instruments for signalling the monetary policy stance.  LAF, supported by instruments such as the CRR, OMO and MSS, had served the Indian monetary and financial system well.  Large volatility in capital flows and sharp fluctuations in government cash balances, however, posed several challenges to liquidity management by the Reserve Bank.

HBL

Two sides of a coin



Chavanni ( 25 paise coin) passed away last month. With it died many a memory attached. Announcing the death sentence, the RBI, India’s central bank had said, “Coins of denomination of 25 paise will cease to be legal tender from June 30, 2011”.



What it leaves behind is a legacy. It also leaves only one coin which denotes paisa, the fractional denomination of the rupee - 50 paisa. Once this dies it will bring the end of an era. The word “Chavanni” was often used in jest or ridicule. Chaar anna was preferred, but then nobody it today’s India understands the word “anna” unless it is suffixed by the word “hazare”. Those on the wrong side of sixty will remember the rights which the chavanni had – it could get you a mini meal , a coke or even a movie ticket. What’s more, it was the contribution one had to make to become a member of the Congress Party at the time of independence. Finally, add to it a rupee and you had the most auspicious offering (sawa rupaiye ka prasad) to the Hindu Gods. The wealthy were called “paisawala”. Now they are called rupee millionaires and billionaires. Soon they will be weighed in dollars or Great Britain pounds. With the British back in our lives— life , like the shape of the coin would truly have come a full circle. Paisa has its relevance not only in its usage as money but also in language . All idioms ,colloquial terms and songs use it . This cannot be replaced by the word rupaiya for lack of effect and rhyme. Connaught place will , despite all sakari efforts, always remain Connaught place and not Rajiv Chowk. Google for Hindi songs with the word paisa and several will spring up. None , I suspect, with “rupaiya” . The most often reference would be a scoff at its preference over love. Even a recent Bollywood item song — “paisa paisa karti hai , tu paise pe kyun marti hai,….” tells you that in the era of crores paisa retains its value . Besides when you ask for the price the question is “kitne paise loge” never kitne rupaiye loge . Paisa , in India always represented the coin. (It is only of late that the rupees have begun to go metallic.) and the coin always had its value . Reason ? Simply because as a piece of metal it had a value . A printed piece of paper does’nt. In fact, in Britain a set of copper coins once had to be recalled as the value of copper by weight in the coin exceeded the value of the coin and people had begun to melt the coins and sell the copper. However , in today’s age money has lost its value even as values themselves have been lost . In a scam-tainted and corrupt society like ours , as you start printing higher value notes the amount and convenience of the bribe goes up proportionately . After all, carrying a suitcase of 100 rupees is effort enough , imagine if one had to carry paisa of the same value . The relevance is only pronounced by the ridiculous rate of inflation we have today. On the other hand we need to progress and cut unnecessary use of material in exchange . Thus, plastic money and electronic transfers as a mode of transactions need to be encouraged. Save metal, save paper, save ink. But then, how do you decide who bats first in a cricket match. You cant flip a note or a credit card, can you? Finally, there is now a coin of 150 rupees to come. It shall mark the 150th birth anniversary of India’s legendary poet Rabindra Nath Tagore. That sure is heavy metal. As Independent India grows an year older – all set to enter its 65th year – it also grows younger with the youth comprising two thirds of its population. Yes , the tail is wagging. But the energy of the tail needs the experience of the heads to move in the right direction. They must move in tandom. They must recognise each other’s importance. After all they are inseperable, like two sides of a coin.

The Pioneer 

‘Changing into a private bank is not a choice, but a compulsion', says Saraswat Co-op Bank chief

...The transformation into a private sector bank is expected to help Saraswat Bank overcome the constraints in raising capital under the co-operative framework and brace up for increased competition as the RBI has kick-started the process for issuing licences for new banks in the private sector.....

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How retired Arvind Khaladkar has managed to reverse the fortunes of Janata Sahakari Bank

Though Khaladkar had no experience in the banking sector, he was determined to succeed. "When I took over as chairman, the bank was in a bad shape, with unrecovered debt amounting to nearly Rs 500 crore. The RBI wasn't keen to let it continue and the bank was on the verge of losing its operating licence. In fact, on one occasion, an RBI Deputy Governor challenged us when he said that the bank would not be able to recover even Rs 50 crore," he says. The remark simply served to fuel his ambition.

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The rationale and the likely outcome

The Finance Minister has cited two reasons to support his proposal for inducting a few more banks from the private sector.  The first is to promote inclusive growth — the need to extend the geographical coverage of banks and improve access to banking. Apart from the stipulation that the new bank will have a fourth of its branches in the rural areas, the draft guidelines do not have anything specific on financial inclusion.  The second reason cited by the Finance Minister is “the need to ensure that the banking system grows in size and sophistication to meet the needs of modern economy.'' This, rather vague statement, was made on earlier occasions too when the government threw open the doors (in 1993 and 2001). It is doubtful whether the government really believes that a few new entrants will make a material difference to what all banks, public and private are doing now. Finally, it would be good to remember that the draft guidelines have been formulated a full 18 months after the Finance Minister mooted the idea. Final guidelines will be issued only after the RBI receives the feedback and the necessary amendments to existing banking legislation carried out. The RBI is obviously not in a hurry. The central bank has also made it clear that not all those who qualify will be given licences, meaning, there would be a pick and choose even at the final stage. Incidentally, an expert group appointed by the RBI and not the RBI itself will award the licences. This is meant to safeguard the central bank from political pulls and pressures that are to be expected. But can the expert committee stand up to those any better than the RBI?

HBL

No reason yet for a central bank U-turn on monetary policy

In short, it’s clear the Indian economy still has a lot of steam left, price pressures are still strong and the current data do not indicate any reason for RBI to change its policy stance....

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Evaluating the macroeconomy

The Reserve Bank of India's latest annual report, released recently, makes a candid assessment of the macroeconomic performance during 2010-11 and the prospects for the current year. Although the economy returned to its high growth path, it faced several challenges: investment activity slowed; fiscal consolidation was led by cyclical and one-off factors casting doubts on its sustainability; and inflation remained stubbornly high on the back of new pressures. The RBI responded to the challenge of inflation by raising policy rates by 4.75 percentage points on a cumulative basis from March 2010. The report points out that high inflation by itself would have brought down growth. When inflation is high, the theoretical tradeoffs between inflation and unemployment or between inflation and growth do not work. Well into the current year, inflation has continued to be the number one concern for policymakers. The RBI is poised to raise interest rates further even though it is well recognised that some of the growth momentum will be lost in the process. Indeed, the lower GDP growth at 7.7 per cent in the first quarter is partly attributed to the high interest rate environment.

The RBI's GDP growth projections for the current year have been more modest than those of the government. However, even with the expected deceleration, growth is likely to remain close to the trend of about 8 per cent, the rate forecast by the central bank way back in May. Inflation is expected to remain high for the rest of this year and moderate to about 7 per cent by 2012. In the absence of supply side responses, monetary policy has its own limitations as an instrument for curbing inflation, although it can still play an important part in countering the second-round effects of supply-led inflation. On current assessment, the fiscal deficit this year is likely to overshoot the figure anticipated in the budget. The deficit will widen further, if the economy slows down, as feared, and the revenues drop sharply from the anticipated levels as a consequence. On the other hand, the current account deficit can be contained within a sustainable level of 2.7-3 per cent of the GDP. However, the outlook for the external sector during 2011-12 looks uncertain. The annual report lists six medium-term challenges for the Indian economy. Predictably, bringing inflation and inflationary expectation down to acceptable levels tops the list. It is one thing to get the diagnosis right; it is yet another to come up with the remedy.

HBL

RBI banks on financial solvency and credibility

... Yes, the draft guideline is ready but before the RBI makes it a final one, the Parliament will have to make some amendment in the existing banking regulations. As the government at the Centre is already saddled with many financial bills, it is not clear when the bill to amend the Banking Regulation Act will be taken up and cleared.....

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How should the govt exercise owner’s right?

RBI has made it clear that it will give licence on a “very selective basis” and “it may not be possible…to issue licences to all the applicants meeting the eligibility criteria”. A senior professional of an industrial house suggests that if there are too many candidates and all of them technically qualify, RBI should auction the licences...

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Bank capital structure: Does Modigliani-Miller operate?

...It would appear so if the Reserve Bank of India's draft guidelines on the entry of new private banks is any indication. Indeed, an interesting conceptual issue thrown up by the draft guidelines is about the validity of that well-known capital structure theorem in the realm of banking and, more generally, financial intermediation. ...

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FDI Deals Should Not Come with Any Strings Attached: RBI

The Reserve Bank is hardening its stand on FDI deals to drive home the point that there should be no strings attached to such inbound flows. In eight out of 10 FDIs, foreign investors have a right to sell back shares to Indian promoters if certain conditions are not fulfilled. In the last few months, the RBI has questioned many such deals as it thinks such inflows are foreign ‘loans’ and not ‘equity’. This is turning out to be a hotly-debated issue amid arguments that such a regulatory stance is not only misplaced but can also slow down FDI. But, according to recent communications, the central bank is not only sticking to its stand but also thinks that such transactions are ‘illegal’. The RBI feels that a sellback right, or a put option, to foreign investors amounts to one-to-one derivative deals. Since equity derivatives can be traded only on stock exchanges, such over-the-counter (OTC) contracts are not permitted under law. Under Indian laws, banks and corporates can enter into foreign currency and interest rate derivatives. These are transactions done to lower the cost of borrowing and lock into a better foreign exchange rate to extract more out of export receivables. While currency and interest rate derivatives can be OTC deals as well as traded on exchanges, stock futures and options have to be traded and settled in a registered stock exchange. “The central bank has recently expressed views that such OTC deals are illegal. The regulator, in some cases, has taken a view that such agreements may be viewed to be in violation of the FDI policy and Fema regulations. This may cause great exit uncertainties for foreign investors,” said Siddharth Shah, who heads the funds practice at the Mumbaibased law firm Nishith Desai Associates. However, industry circles think that a put option in an FDI agreement cannot be equated with a stock option traded on exchanges: in exchanges, options can be traded and cash settled with receiving and delivering underlying shares; but put options in FDI shareholder pacts result in shares changing hands since the option and the shares are inseparable. There is a distinct possibility that the present standoff between the regulator and industry could boil over into litigations. Corporates have been arguing that a sell-back agreement does not convert an FDI into loan simply because it is the promoter who is buying back shares and not the company which is receiving the FDI money. Perhaps, in the face of such an argument, RBI has taken a tougher stand to arrive at a view that put option clauses in FDI deals are stock derivative contracts. According to regulatory sources, RBI is keen to ensure that FDI deals are plain-vanilla, long-term equity risks; making them quasi loan – as RBI thinks they are with put options — can blunt the power of monetary policy and interest rate hikes because companies that need money will sidestep local banks that charge a higher interest rate to source cheaper finance from offshore investors. Typically, foreign investors insist that they should be in a position to exercise such a sell-back right if the company where they invest fails to list its stock within an agreed time frame. Indeed, “Put option continues to be the most preferred mode of potential exit for the parties to the transaction, mainly due to the high level of uncertainty associated with capital markets exits in India,” said Punit Shah, executive director (tax & regulatory Services) at the consultancy KPMG. According to a ET report dated June 1, 2011, while in the past RBI had objected to deals, particularly by real estate firms, where securities issued by Indian firms (to foreign investors) are debt or quasi debt in nature, such as convertible debentures, optionally convertible bonds, compulsorily convertible papers and preference shares, it was now objecting to sell-back pacts in plain equity deals. “As long as such a sell-back agreement is not based on any fixed IRR (or internal rate of return) promised to the investor and is within the Fema pricing regulations, there is no reason why RBI should object,” said Anup Shah, partner at Mumbai-based chartered accountancy firm Pravin P Shah & Co. In fact, RBI is also understood to have questioned the shareholder agreement with foreign venture capital funds which are not bound by any price restrictions. Sources said that RBI’s attention was drawn on the subject by some of the local promoters who wanted to wriggle out of the buy-back commitments. “In cases where local promoters are willing to pay up, foreign investors have freely exercised their put option to exit. One of the large global real estate funds sold 80% of its portfolio in the last one year through this route,” said a real estate fund manager.  But more recently, RBI has been digging up old records and ‘FC-GPR’ forms, which companies have to submit with RBI after issuing shares to foreign investors. “RBI’s serious. Despite a slowdown in FDI, it’s toughening its stand. Many companies have received letters from RBI asking them to share their shareholder agreements. In some cases the regulator has warned that it may initiate the compounding process to fix fines that will have to be paid by the local company as well as the offshore investor,” said a banker.

ET

A cautious approach to new banks

The bias against large industrial houses has continued in the reform era

The Reserve Bank of India took one step forward in what has been a long drawn-out process of issuing licences for new banks in the private sector. The draft guidelines, which have been put up on the central bank's website, spell out the eligibility criteria, the organisational structure to be adopted by the new banks, the minimum capital requirements, corporate governance standards, the business model and related issues. The issue of giving licences to a few private parties to start commercial banks has always been a sensitive one. More so, at this juncture, when it is believed that the new policy relaxation is primarily for the benefit of large industrial houses and business groups. Before 1969, many leading banks, including Bank of India, Bank of Baroda and United Commercial Bank, were owned or controlled by leading business groups. In a two-stage process that began in 1969, the government nationalised these banks in a decision that had as much to do with domestic politics as economics. The case for the takeover was built on the ground that these banks were serving their private promoters' interests and that in any case there was a need to reorient the banking system towards national interests (a period of social control of banks preceded their takeover). The bias against large industrial houses has continued in the reform era. Following the guidelines of 1993 and 2001, some private banks came into being but none of them was sponsored by large business houses. However, this time it is likely that a few industrial houses will make the grade. The RBI discussion paper, which had considered the pros and cons of such a move, received wide ranging feedback. Even at the draft stage, the RBI has laid down stringent conditions.

Tough conditions

1. Eligible promoters: Entities/groups in the private sector, owned and controlled by residents, with diversified ownership, sound credentials and integrity and having successful track record of at least ten years will be eligible to promote banks.

In a significant move, the RBI has barred groups having even an exposure of 10 per cent (by way of assets or income or both) in real estate and/or broking activities over the past three years. Evidently, these sectors are ‘speculative' in nature and the business model adopted in such businesses will be ‘misaligned' with that required by a bank.

2. Corporate structure: New banks will be set only through a wholly-owned non-operative holding company (NOHC), which will be registered with the RBI as a non-banking finance company. All financial activities of the promoter group will come under the NOHC. The idea is to ring fence the financial interests of the group from its other business activities and give a measure of protection to the bank's depositors.

3. The minimum capital requirement will be Rs.500 crore. The NOHC will hold a minimum 40 per cent of the capital for five years from the date of licensing. The aggregate non-resident shareholding will not exceed 49 per cent for the first five years.

4. Corporate governance: At least 50 per cent of the directors of the NOHC should be independent directors.

5. The business model should be realistic and viable and should address how the bank proposes to achieve financial inclusion. The bank should have a fourth of its branches in unbanked rural areas. The RBI will have the powers to vet the business plan and pull up the promoters for any deviations.

6. Amendments to the Banking Regulation Act, 1949, will be carried out to give the central bank extensive powers in a wide range of matters necessary for effective supervision. The bank shall get its shares listed on the stock exchanges within two years of licensing.

HBL

Pranab to hold meeting with Chief Ministers, bank chiefs

In continuation of an economic exercise started last year for direct interaction with States, Finance Minister Pranab Mukherjee is slated to hold a meeting with western and central region State Chief Ministers and chief executives of public sector banks in Mumbai on September 17 to review problems pertaining to credit offtake and flow of funds to the farm sector.  The meeting, being convened a day after the RBI's quarterly monetary and credit policy review on September 16 in the wake of an uncertain environment of high inflation and economic slowdown, is likely to discuss, among other issues, the progress of centrally-sponsored schemes.

HBL

Don't allow big businesses to run banks: CPI (M)

...Referring to the draft guidelines unveiled on August 29 by the Reserve Bank of India for licensing of new banks in the private sector, party general secretary Prakash Karat said at a press conference here: “In the light of the global financial crisis sparked by the profligacy of banks and financial speculation in 2008, this is an irrational decision.” ...

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SKS may approach RBI for bank licence

....SKS Microfinance CEO and Managing Director M R Rao said the company does not see any major issue in meeting the eligibility criteria set by the Reserve Bank of India (RBI).......

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The Bank Customer is King? - DR. N. A. MUJUMDAR

Are we really pampering the customer of banks, particularly public sector banks (PSBs)? This is the question we are likely to raise when we see yet another " Report of the Committee on Customer Service in Banks" submitted by M. Damodaran, former Chairman of SEBI last month. There was the Talwar committee on customer service in banks appointed in 1975, the Goiporia Committee appointed in 1990; the Tarapore Committee appointed in 2004, made recommendations which led to the formation of Board level Committees for monitoring customer service in banks. Are we treating the bank customer as king? Not in reality, alas! The Damodaran Committee appointed by Reserve Bank of India in May 2010, aroused particular interest because the first among its six terms of reference was the following: " To review the existing system of attending to customer service in banks approach, attitude and fair treatment to customers from retail, small and pensioners segment". After perusing through this scholarly Report of some 150 pages one is disappointed that this specific issue has not been adequately addressed. Let there be no misunderstanding. It is a scholarly Report and the Committee has done its homework. It has sought guidance from " international best practices". The United Nations Guidelines for consumer protection, the Financial Services Authority, U. K.' s ( FSA) fairness commitment to be made by banks, the Community Reinvestment Act ( CRA) of U. S. A. which prohibits discrimination by banks against low and moderate income neighborhoods, all these were analysed by the Committee to derive policy inputs. The Committee has made excellent recommendations for streamlining Grievance Redressal System in banks, Banking Ombudsman Scheme, Banking Technology and Role of Boards of Banks in customer Service.

The Committee deserves to be congratulated on the high quality of the Report. This article seeks to highlight the fact that the Committee has failed to address adequately the problems faced by the small borrower the aam admi precisely what the terms of reference mentioned above required.

Glancing through the recommendations, one gets the impression that most bank customers are familiar with mobile banking, and receiving and sending SMS: if a bank wants to make an account inoperative, banks must intimate the customer by SMS; not maintaining the minimum balance should be intimated by SMS; small discounts should be offered to customers to promote electronic payments; provision to apply for small retail loan should be available in bank's portal and Internet Banking; and so on. No doubt your vegetable vendor may be using mobile phone today: but is he capable of sending and receiving SMSes? The perception of banking business by Reserve Bank today is reflected in the following statement of a Senior Officer: " Assets with banks are maintained more in digitized rather than physical form, transactions are carried out over technology- enabled platforms/ applications and communications are over electronic modes ..... There are newer products and channels of delivery. Networked environment has enabled delivery of banking services at the door step of the customer. Anywhere and anytime banking with core banking and newer delivery channels viz, ATM online banking and mobile banking etc. have provided convenience of banking to the customer and an increasing number of people rely upon the convenience and ease of inter net banking services, in their business as well as daily life". ( Secured Online Banking and Customer Convenience G. Padmanabhan, RBI Bulletin August 2011). It is such a perception of high profile banking which colours most of the recommendations of the Damodaran Committee. Are we focusing on elite banking or high profile banking, at the cost of core banking? One begins to wonder. Let us discuss the following three core banking issues.

First KC ( Know your Customer) Norms. Dr. S. S. Tarapore the veteran Central Banker, has been carrying on a one- man campaign to expose how many public sector banks ( PSBs) are using this instrument to shoo away the small customer from accessing banking services. He has put into public domain several concrete cases to demonstrate that small customers are prevented from opening accounts on flimsy grounds: authenticating residential address or even spelling mistakes in their names or localities in which they reside. The victims include domestic help, drivers or a labourers working with a construction firm. In this sense, Dr. Tarapore has bitterly argued that KC has become a synonym for " Kill your Customer". One does appreciate the security concerns but the managers at the branch level should be discerning enough to discriminate between bona fide cases and suspicious cases. The Damodaran Committee does refer to reforming " attitudinal aspects" and " rude Relationship Managers" but does not offer any concrete recommendations to redress them. It does, however, recommends that " self- attested photograph and address proof should be treated as sufficient kyc to open no frills account". In cities like Mumbai where 40 per cent of the population lives in slums or semi- slums, it may be difficult to produce documents re: residence. The point is bank managers should be flexible in appraising such documents. Financial inclusion campaigns will be meaningful only if mangers adopt a helpful attitude towards opening accounts. Secondly, on the positive side, take financial inclusion. Under this campaign, some 75 million no- frills bank accounts have been opened. Unfortunately, about 85 per cent of these accounts are not operational and the average deposit per account is Rs. 11 because the account holder's are not involved in any economic activities. What purpose on earth such " dead" or " near dead" accounts serve? Recently RBI has pulled up banks for paying lip service to financial inclusion and asked them to activate these accounts. Is this issue not part of customer service? Thirdly, in the not- too- distant pastsome public sector banks played a critical role in agricultural development. They appointed their own agricultural officers and provided extension services. This extension- linked credit was a great success. Today, with the Government deemphasing the role of the extension worker, there is a gap which could be usefully filled by banks. Agricultural growth is necessary not only for food security but also for overall growth of the economy. The main point to drive home is that when we talk of customer services of banks in India, we should grow out of the " international banking practices" syndrome. India- specific issues should receive equal emphasis Serving ( HNIs) high networth individuals or high profile bank customer is indeed banks' legitimate business. But this should not overshadow the core and traditional banking business, including serving and nourishing the small borrowers. Our banking culture should be so shaped that it blends the dual functions.

FPJ