Gokarn to banks: Use KYC to ‘Grow with Your Customers’



Mr Pratip Chaudhuri, Honorary Secretary, IBA and Chairman, SBI, greeting Dr Subir Gokarn, Deputy Governor, Reserve Bank of India, at Bancon 2011, in Chennai on Saturday

Knowing customers will help banks to grow, said Dr Subir Gokarn, Deputy Governor, Reserve Bank of India, while delivering a special address at the Bancon 2011, held here on Saturday. “If you really know your customer, you will be able to grow with your customers,” he said, adding that knowledge capital will enable banks to move from “KYC to GYC” (grow with your customer).  According to him, knowledge is key in understanding the market. KYC norms will thus help banks understand the demographics, income, etc which banks could use favourably in serving customers better and thus grow with their customers. Dr Gokarn pointed out that it is the middle ground where there are many opportunities, and even as the banking system is dealing with its internal challenges, it is important for banks to come out with products and services targeting this opportunity. Just as there is an opportunity in rural financial inclusion, urban financial inclusion also throws open lot of opportunities for banks, said Dr Gokarn. Banks should analyse the basic motivating factors for savings and borrowings, which will help them meet the needs of customers better. For all emergencies, the primary source of credit for the financially excluded in the rural and urban areas is the informal sector.  “Banks need to explore this opportunity and meet these needs, which mean lower cost of borrowings for these people,” he said.  Encashing the demographic dividend properly is not possible without knowing the customers better. Understanding the motivators for savings and borrowings is key to making financial inclusion a profitable venture.

HBL 

RBI followed 'text-bookish' method to control inflation: Basu

KOLKATA: Chief Economic Adviser to the Finance Ministry Kausik Basu today said the Reserve Bank followed conventional methods of raising interest rates to tame inflation which do not seem to have worked.  "I was concerned about the use of traditional methods by RBI for anti-inflationary monetary policy to contain prices. The RBI followed the text-bookish way to announce monetary policy," Basu told reporters here.  He said the standard anti-inflation policies of raising interest rates were not working.  The central bank has hiked interest rates 13 times since March 2010 in its bid to tame inflation.  Basu said raising interest rates to suck out liquidity from the system would have disastrous effect on the economy.  On the persistent high food prices, he said the food inflation is likely to come down in three weeks time and overall inflation by the December end.  Food inflation was 12.21 per cent in the week ended October 22, while the headline inflation in September (latest data) was 9.72 per cent.

ET

Strike will damage customer confidence: SBI

State Bank of India today termed the strike called by its officers for November 8 and 9 as unfortunate and said that it would damage the customers' interest and confidence. "It is unfortunate. The talks are still going on..." SBI Chairman Pratip Chaudhuri told reporters on the sidelines of three-day conference "Bancon 2011", organised by Indian Banks' Association and Indian Overseas Bank here. Stating that the strike called by the All India State Bank Officer's Federation (AISBOF) would damage the interests of its customers, he said, "We expect and hope that the strike will be called off. We have not estimated our losses on account of the strike yet. More than loss of money, it will damage the confidence of our customers". Services in the banks' nearly 13,500 branches across the country are likely to be affected as its officers have given a strike call on November 8 and 9. The bank has a customer base of over 13.60 crore. AISBOF served a notice for the two day country-wide strike in pursuance of certain demands. Asked about the deregulation of savings account interest rates by RBI, Chaudhuri said the bank would not look at changing the interest rates in the immediate term. "We are not contemplating any change in the savings account interest rates", he said. Citing the RBI's move, some private sector banks have already increased the interest rates on their savings bank accounts. Asked about the Finance Ministry's ruling out SBI's proposed rights issue, Chaudhuri said, "It is not ruled out. We have different options. The Government has put Rs 4,000 crore (for SBI). Whether it will be through rights issue or by preferential issue will be decided by the government.”

BS

No tight monetary policy once inflation softens: Rangarajan

CHENNAI: The Reserve Bank of India (RBI) may reverse its tight monetary policies once inflation softens, said top economist C. Rangarajan Saturday. "By December-January, the inflation would break and a reversal of policy is possible," Rangarajan, chairman of the Prime Minister's Economic Advisory Council, told reporters on the sidelines of Bancon 2011 - a banking conference held here by Indian Overseas Bank (IOB) and Indian Banks' Association (IBA). According to Rangarajan, the inflation will continue to be high for one or two more months and then soften by this fiscal-end. Earlier inflation rate was driven by prices of vegetables and food grains but now has spread to manufacturing sector as well, he said. Queried whether corporate groups were to be allowed to venture into banking, he said the issue needs to be debated and if there are proper applicants, then they should be allowed.  On the infusion of fresh capital in public sector banks, Rangarajan said the government will have to come out with supplementary demands for grants between Rs.4,000 crore and Rs.10,000 crore as against Rs.6,000 crore budgeted for the current year.

ET 

'New banks should be allowed to maintain competition, says Rangarajan

If the banking system needs to remain competitive over time, there should be no bar on the entry of new banks, Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, said at the Bancon-2011 here on Saturday. “A closed system could only become oligopolistic. The ‘threat’ of entry should not be eliminated,’’ he added. It is up to the RBI to lay down norms for entry and also decide on who satisfies the criterion of “fit and proper’’.  Dr Rangarajan also said that the recent financial crisis has “forced us to re-evaluate the size, role and rate of growth of the financial sector’’.  The regulatory regime needs to be restructured to make the banking system more sound.  “Excessive risk taking and leveraging by banks need to be discouraged by appropriate regulatory measures or controls,’’ he said. In order to enable the financial system to meet the diversified needs of a growing economy, there is the “need to encourage the emergence of a vibrant corporate debt market’’, which will help not only large industries but also SMEs.  “We would also need institutions which will serve as market makers offering two-way quotes. This will provide the required liquidity to the market and make it attractive to the investors,’’ he said, adding that banks should explore innovative ways of financing infrastructure. Even as regulatory oversight of innovations is necessary, Dr Rangarajan said that regulatory perspective on innovation “must not become too restrictive’’. Policy-makers should strike an appropriate balance between the “need for financial innovations to sustain growth and the need for regulation to ensure stability’’. He also urged the banks to take a re-look at the organisational structure of rural branches to meet the credit needs of marginal farmers. The banks should also play a proactive role in organising self-help groups, and it is important to enlarge the scale and scope of activities of the SHGs. “This would enable the banks to reach out to people with low incomes including marginal farmers,’’ said Dr Rangarajan. According to him, the business correspondents’ model of financial inclusion has not been satisfactory. Hence, banks should explore the possibilities of looking at other alternatives.  “We should explore the possibilities of looking at low-cost brick-and-mortar branches in panchayat headquarters. Profitability rests on making the operational cost of such branches low,’’ he pointed out. He added that it was worthwhile to re-open the issue of setting up local area banks.

HBL

Challenges to Central Banking

THIS VOLUME CONTAINS AN ILLUMINATING SNTHESIS OF THE COLLECTED WISDOM ON CRISISRELATED RESEARCH B RECOGNISED LUMINARIES AMONGST ACADEMIA, POLIC- MAKERS AND MARKET PARTICIPANTS – Book Review by P.P.Ramchandran

The RBI celebrated its Platinum Jubilee during 2009- 2010 and as a part of its celebration organized an International Research Conference in Mumbai. The papers and proceedings of the Conference have been brought out in this new book edited by Deputy Governor Subir Gokarn. The theme of the Conference was " Challenges to Central Banking in the context of the Financial Crisis". The inaugural address was given by Governor Subbarao followed by a keynote speech by the Nobel Laureate Andrew Michael Spence of Stanford University; four technical sessions were held and papers were presented and discussed.

There are in all 36 contributors including seven Central Bank Governors and six Deputy Governors and a galaxy of bankers, economists and professors. The volume offers the distilled wisdom of recognised academicians, policy makers and central bankers. It analyses thoroughly, inter alia, problems like monetary policy, debt crisis, exchange rate policies, financial stability imperatives, etc. According to Governor Subbarao, who effectively poses the problems, there are five key challenges to all central banks. The first one is managing national monetary policy decisions in a globalised environment. The second is redefining the mandate of the central bank in the context of inflation targeting and asset prices. The third challenge is central bank responsibility to maintain financial stability.The fourth is the ability to manage costs and benefits of regulation. The final challenge is the need for autonomy and accountability of central banks. The Nobel Laureate economist Prof. Spence was the Chairman of the " Commission of Growth and Development ". The Commission was formed chiefly by political and public policy leaders from the developing world. According to him 13 countries grew at the rate of seven percent or more over 25 years. India and Vietnam are likely to join this group in the near future. Two factors responsible for this was maintenance of a stable macro- economic environment conducive to investment. Also there was high level of investment including public sector investment. A key component of high growth was the very heavy investment in human capital. Prof. Spence averred that central banks have an informative advantage because of the work they do. They have, in addition, a capital advantage, much as an entity like the IMF has - and that is superb analytical talent. He laid emphasis on four factors - managing inflation, internal and external crises, volatility and achieving autonomy without losing credibility. The technical sessions discussed threadbare issues like ' policy discretion', ' regulatory systems' ' flexible inflation targeting' and ' asset prices'. Another subject was the challenges posed by globalisation to central banks, fiscal problems of industrial countries. The third session concentrated on disruptions in financial systems and the imperative need for financial stability mandate. Regulatory responses should not be allowed to stifle financial innovations. The fourth session examined whether financial stability should be an explicit objective of monetary policy and whether its absence contributed to the financial crisis. In two panel discussions Governors of central banks offered their candid views on important issues with both country and global perspective. Five critical issues related to International Monetary system were the subject of discussion in a panel. The discussions were given direction by the Deputy Governors of R B I , who also offered a summing- up. Quoting from the latest book of Niall Ferguson, " The Ascent of Money" Governor Subbarao stated, " Sometimes the most important historical events are the non- events: the thing that did not occur." The spectacular non- event of the crisis is that the ' Great Recession' did not turn into the ' Great Depression'. For this central bankers should get a part of the credit. This is a volume to be read with great care and diligence. It contains the essence of wisdom of some of the wisest heads of our generation. Among the distinguished participants were Martin Wolf, Chief commentator of Financial Times, William Pole of Federal Reserve Bank of St. Louis, John Lipsky, Deputy Managing Director of the IMF and B Friedman, Professor, Harvard University. The RBI and the Academic Foundation deserve praise for making the valuable proceedings of the conference available to students, scholars, bankers, economists, planners and the public.

FPJ

Govt banks won't pay more on savings a/cs

Bankers said savings deposit accounts were used mostly for transactional purposes, not for saving funds. So, customers may not be willing to move from one bank to another. “Customers may have issued post-dated cheques or have ECS on savings accounts. No-one is going to take the trouble of shifting all these services from one bank to another,” said a senior executive from a public sector bank....

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The rate dilemma

With the Reserve Bank of India (RBI) decontrolling the savings bank interest rate, investors are in two minds whether to continue investing in short-term debt funds or park their money in savings bank accounts. Banks like Yes Bank, Kotak Mahindra Bank and IndusInd Bank have already raised the savings bank account interest rate to 5.5% per annum for balances below R1 lakh and to 6% per annum for R1 lakh and above. Other banks are likely to follow suit. Analysts say some investors would prefer to park money in savings bank accounts now, instead of liquid mutual funds because of higher liquidity and safety of the principal amount. Liquid funds primarily invest in debt securities — commercial paper, certificates of deposits and treasury bills of maturities less than 91 days — and offer higher post-tax returns than savings bank accounts. They also provide a dividend option where the dividend distribution tax is deducted by the fund house. 

IE

RBI directs UCBs to adhere to extension of interest subsidy

....The announcement comes in the wake of RBI's decision last month to extend the 2 per cent interest subsidy on rupee export credit to such sectors to cushion them from slowdown in major markets like the US and Europe......

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India’s folly: Borrowing abroad to create a sovereign fund

......RBI Deputy Governor HR Khan recently emphasised at an export conference that “We are a current account-deficit country…We are a balance of payments-stressed country. We have to promote exports to see that this is not going out of hand

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