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Saturday, August 30, 2014
Raghuram Rajan: In step
We cannot be seen as a paper tiger: Raghuram Rajan
..................RBI has had cordial relationships with both the governments and sometimes there’s a view in the press that there should be differences. Indeed, there are issues where we are not on the same page, and we try to persuade. Eventually, because decisions have to be made, one side goes along with the other. There are, of course, occasional differences between how the government views something and how RBI views something and those differences in horizon as well as some differences in background will prompt discussions. The classic example is the central bank’s views on growth, inflation and interest rates.................
CBI probes RBI officials named by Nitu Sarkar
.........The CBI lawyer submitted that they have reasons to believe that Sarkar and Sandhir acted as conduits of Saradha boss Sudipta Sen to manage Sebi and RBI. He argued that the duo could keep Sebi at bay for three years after the agency first issued a letter against the Saradha operations in 2010. Bhagat pointed out that Sebi sprung to action in 2013 when the maturity cheques of depositors bounced. CBI officials will scrutinize the probe progress and work on the information stored in Sandhir's laptop and the RBI officers' names before they plan their next course of action, likely next week...........
Reading (Re)quest
Dear Shri Warrier
I am one of the readers of VITALINFO and I also contribute my comments/ opinions on matters related to banking from time to time. I also read with interest your opinions. I would like to read your book. Where can I get a copy? My e mail ID is santhraj@yahoo.com I am an ex-NABARDIAN from Pune. Looking forward to hearing from you.
- S Santhanam, PhD (Eco)
General Manager (Retd), NABARD, Pune
Res: D 9 Amrapalishree CHS Ltd, Near Aga Khan Palace, Yerawada, Pune 411006
Interesting article
As one, who was inside RBI when the Agriculture and Rural Debt Relief Scheme (ARDRS),1990 was introduced and implemented, I am able to appreciate the anxieties and worries expressed by RBI Governor in the context of the present demand for more debt waiver schemes. Major component of banks’ resources is public deposits and government is dependent on taxpayers’ contribution for meeting financial commitments. Mentioned this to highlight that both banks and government have trusteeship responsibilities in regard to the funds they handle. When crops fail or natural calamities wash off assets of entrepreneurs, there has to be a transparent support system which will help those who suffer loss. If nation needs products including agricultural produce growing/manufacturing which is not commercially viable, subsidizing costs of production and marketing them becomes necessary. The present support system which works through subsidies(front-end and back-end), various tax concessions at different levels and write-offs and waivers of debt is neither transparent nor scientific. A review and revision of the entire system, factoring in the following aspects(list not exhaustive) has become overdue: (i) In agricultural sector, there is need for a comprehensive and compulsory crop insurance scheme. Those farmers who do not avail bank credit also should be encouraged to participate. May be an appropriate disincentive scheme denying any government support in case of crop loss may be necessary to ensure 100 per cent participation. Initially, the scheme should get financial support from central and state governments and banks(as a percentage of agricultural credit provided by the bank) (ii) Rationalise subsidies including interest subsidy. At present, at least in some states, interest subsidy is working as a disincentive for improving productivity. (iii) Life insurance and insurance of crops and investments up to a bench mark level compulsory for all bank loans.
- M G Warrier, Mumbai
RBL Bank firms up plan to rapidly expand credit card base
.........."While we had plans to start the credit card business on our own, the acquisition provided an opportunity to accelerate the process. The objective was to take over a running business along with the infrastructure and hence get a head start. We took over a performing book consisting of vintage customers with good spends and risk profile. Now, our aim is to scale this business up significantly in the next two to three years,"....
Wanted: 5,000 independent directors
.........Corporate legal experts point out that several hundred companies need to re-constitute their board over the next two months, in line with requirements of Sebi's listing agreement when it comes to independent directors (IDs), and having woman directors on board. It is estimated corporate India would see an additional need for up to 5,000-odd independent directors by 2019........
Leadership crisis in PSBs—a reform agenda
..........Over a period of time, the process of selection of CMDs and EDs and nominations on the board have come for severe criticism. The selection to these top positions is patchy, ad hoc and nebulous. Selection of EDs and chairmen is undertaken as a routine exercise by the government with ad hoc criteria (changing with every exercise), a routine interview lasting for a few minutes and a highly opaque system of allotment of banks to the selected candidates. The system has perpetuated for too long and has failed to deliver the best in class leaders............
Lure of lucre
...........Seriously underpaying senior management increases the temptation to be corrupt. Singapore's decision to pay its top bureaucracy market-linked salaries explicitly acknowledged this problem. But this is only part of the story. The lack of a proper incentive structure is reinforced by slack governance and political-bureaucratic interference. Nominee directors appointed by the government on bank boards are reputed to use their positions to earn rents. Even if not all of them do this, how can a board, whose members succumb to temptations, scrutinise and judge the chairman and other senior managers? The problem is undoubtedly compounded by the substitutability between political-bureaucratic patronage and hard cash....
Fiscal liberty sans literacy
.........Having said this, one cannot overlook the fact that jumping in at the deep end of the pool is also a way to learn swimming — albeit a dangerous way. One can learn from the SEWA experience. Focus on savings, not credit. Be extremely discerning about when to give credit. Succumbing to the lure of showcase credit figures would be a disaster. Spreading financial awareness is more important than creating infrastructure to impart these services. As such they are mutually exclusive events, but the importance of the former should not be undermined. Involve NGOs to spread awareness. A RuPay debit card, heavy on technology, would be a problem in a rural village than help, without the Do’s and Dont’s clearly hammered.
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Supervising myriad small institutions can be a challenge
..........The Reserve Bank of India’s recent strengthened oversight and guidance on impaired assets and restructured loans are steps in the right direction. Moreover, international experience suggests that governance structures in state-owned banks merit special attention, such as by ensuring a healthy complement of independent and professional directors, strong fit-and-proper appointment processes, and by mandating that they be at arms length from political interest which may impact commercial decisions. What is the IMF’s view on the extent of financial inclusion or exclusion in India and do any of the recent policies seem like they could help in that respect?..................
Payments banks and financial inclusion
.............Now, the question arises whether payments banks would have relevance once the existing banks implement Jan Dhan Yojana. The existing banks may argue that there may not be any need for payments banks. However, the arguments in favour of payments banks are many. First, the service availability gap is so large that the niche banks for inclusion and payments services would supplement the efforts of existing banks. They would not necessarily be in competition. Besides,..............
'India needs Financial Conditions Index'
...........The paper titled 'A Financial Condition Index for India' authored by RBI research officer Anand Shankar stated: "Economic agents often alter their expectations about economic activity and hence their behaviour in response to movement in financial variables." Over the decades there have been tremendous developments in financial markets. Newer financial products have been invented, cutting edge technology has been increasingly used in financial markets, transaction costs have fallen, innovations in product design have been implemented and financial markets around the world are more integrated today than ever before..........
Freedom in Inclusion
...........The concept of financial inclusion is not new in India. Over the years, the government has taken concrete steps towards it. The Reserve Bank of India (RBI) set up Khan Commission in 2004 to look into financial inclusion and its recommendations were incorporated into the mid-term review of the policy (2005–06). It urged banks to review their existing practices to align them with the objective of financial inclusion. The RBI also stressed the need of making available a basic banking ‘no frills’ account either with ‘zero’ or very minimum balance as well as charges that would make such accounts accessible to vast section of the population. However, India has failed to achieve a great success. The statistics on financial exclusion in India provide a very depressing scenario. Out of over 6,00,000 rural habitations in the country, only about 30,000 or just 5% have a commercial bank branch. Just about 40% of the population across the country have bank accounts and this ratio is much lower in the north-eastern states. The number of people.........
PM’s Jan Dhan Yojana faces access deficit
..........It was not concerns over the creditworthiness of the poor which were holding banks back from extending credit, Mr. Rangarajan said. “Currently, our banks are meant to be equipped to disburse loans of millions of rupees and also a few thousand rupees. What is needed is a reorganisation of the structure of banks,” he said. There is also a significant gender gap in banking; by 2012, for every 1,000 deposit accounts opened in the name of men, just 394 were opened in the name of women. Chhattisgarh, West Bengal, Madhya Pradesh, Maharashtra and Gujarat were even worse than the national banking sex ratio, while Delhi and the four southern States were better.............
Jan Dhan Yojana: Banks to get ‘handsome’ compensation
........The commission payable to banks (which then pass on the share to BCs) under the Direct Benefit Transfer (DBT) scheme launched under UPA rule is 1% of the total DBT amount transferred. While there was a plan to raise this to 2% of the “actual amount transferred through BCs", under the new PMJDY the commission could be even higher, the sources indicated. Also, they added, the finance ministry would assess the performance of each Public Sector Bank in implementing the PMJDY and consider it as one of the main parameters while capitalising them..........
A new attempt at financial inclusion
.........In draft guidelines released last month, the central bank envisaged a new category of banks to provide limited services such as accepting savings deposits and remittances, particularly in rural areas. These banks have been designed to provide basic banking services like deposits and remittances to people who deal with small amounts. These banks are needed to have a wide network of branches or access points, particularly in remote areas, and have to keep costs low by using technology in order for their services to be accessible to a larger number of people.................
Foreign hand in Indian stocks
...........In light of this FII dominance, the RBI governor is right to worry about the impact of capital outflows. The herd-like behaviour of global capital is well known and anything that triggers a stampede out of India is likely to cause significant market drops. This is demonstrated by the fact that some of the largest falls in stocks have been in the three periods where FIIs became more circumspect in their enthusiasm for Indian stocks. The first was during the global financial crisis in 2008, the second during the acute phase of the European sovereign debt crisis in 2011, and the last was the recent hiccup........
Funds may raise exposure in commercial paper
........."Banks' requirement for short-term CDs may not be much for meeting liquidity requirements as RBI is open to do overnight variable rate repo auctions. The intra-day liquidity requirements can be met through these repo auctions," said Saurabh Jagwani, senior manager, Andhra Bank..........
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