MSCB unaware of RBI move : Ajit Pawar

Deputy chief minister Ajit Pawar on Tuesday said the management of the Maharashtra State Co-operative Bank (MSCB) had no inkling about the Reserve Bank of India’s (RBI) decision to dissolve the bank’s board of directors. Speaking to reporters in the city after attending a review meeting of kharif season with the Pune district administration, he said, “If the central bank had informed us earlier of such an action, we would have taken steps to prevent it.”  The RBI dissolved the board of the bank on May 7 due to its dire financial condition. The move has unruffled the Nationalist Congress Party (NCP) leadership, as a majority of the directors belong to the party, who have termed the action as “politically motivated to defame the NCP”. Pawar said he would be scrutinising the bank papers on Wednesday before making any statement to the media. “The bank chairman, Manikrao Patil, is examining the documents today. It would be unwise for me to make any comment at this juncture,” he said.

Banks fall short of RBI deposit growth target

Banks have failed to meet the Reserve Bank of India’s (RBI) deposit growth target 18% year-on-year in the last fiscal. The year-on-year deposits growth for the fortnight ended March 25 was 15.84% or Rs5,204,702.64 crore.  The main reason for this, said bankers, was high inflation. “Deposits haven’t grown as projected because of tight money market position and inflation,” said Ramnath Pradeep, chairman and managing director, Corporation Bank. Analysts said banks are to blame too since they were tardy about growing deposits in the first half of the last fiscal because they were sitting on ample funds. They scrambled to mop up deposits in the second half when the liquidity began to tighten drastically. This meant banks had to increase deposit rates. In all, deposit rates rose 250 basis points in the last fiscal,” said Nitin Kumar, deputy vice-president, Quant Broking. Bankers feel low government spending and investor preference for other avenues also resulted in low mobilisation of deposits. “Deposit is not only a function of interest rates. Low government spending was also a reason,” said R K Bansal, executive director (retail banking), IDBI Bank. Bansal said despite good deposit rate hikes, some people preferred investing in equities or some other government saving schemes depending upon their needs.

For better growth, inflation must be around 5-6%: YV Reddy

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People suffer, banks get richer- Rakesh Bhatnagar

For a self-proclaimed welfare state such as India, enrichment at the cost of the tax-payer and the millions of ordinary people who have parked their savings in banks and other financial institutions is anathema.  Yet, there were unclaimed deposits to the tune of Rs13,603,159,647 in a variety of banks — Rs4,731,67,698 in foreign, Rs1,503,23,106 in other private and the remaining in public sector — for more than 10 years till December 2009.  Moreover, Reserve Bank of India (RBI) says at the end of March 2010, there were 54,738 million small coins (which, by definition, include the 50 paisa), adding up to Rs1, 455 crore. Ironically, neither the government nor any bank has shown concern for welfare of the depositors. Whatever the case, the cash-rich, top-heavy banks, which have been using public money the way they want to, can’t be allowed to swallow the deposits. Isn’t it RBI’s sovereign duty to protect the interests of unidentified depositors by putting up notices across the country inviting attention of the unknown and unheard of millions who might have found it hard to get their money back for a variety of reasons.  Owners of the assets must be identified and paid with interest.They should not be made to suffer for no fault for theirs as a friend of mine suffered. His wife had Rs50,000 in her bank account when she died over a decade ago. He approached the nationalised bank with her death certificate and other relevant papers to prove that she was his legally-wedded wife and claim the money, but was denied. The bank wouldn’t verify the facts, either, and instead asked him to move court.  The friend calculated the legal exercise would cost him Rs30,000, apart from the hassles and man hours, and decided against it. The money that belonged to his wife and her child must have doubled by now and the bank enriched.For whose welfare the state is working? Not the people, at least.

‘New banking models needed for financial inclusion’

A large part of the Indian population does not have access to savings, credit and remittances. Many steps have been taken in this direction but we still need to go a long way. Janmejaya Sinha, chairman-Asia Pacific, The Boston Consulting Group, tells DNAin an interview what more needs to be done to increase the rate of financial inclusion. Excerpts:

In the past, the government along with the Reserve Bank of India has taken many steps towards financial inclusion. What other steps do you think we require?

India started pioneering financial inclusion long ago. Gandhiji talked about co-operatives, we created regional rural banks, social service area approach, priority sector and the Kisan Credit Card. For a long time we have been emphasising on inclusion. But the fact is at that stage it was not possible. It is only now that India has a $1,000 per capita and a large economy which will grow fast for many years. So you really have the bare bones of a strong platform. Together with this you now have technology. The other issue is rural has become more important as a part of sales for companies. For the first time there is a real chance to actually address the problem of financial exclusion. But the journey is long. Firstly, we have illiteracy. Both you and I struggle with financial products, so just imagine how big will be the challenge if somebody is illiterate. Then there is not enough income, and the banking models that have been created are for the rich. Those models are based on float, you keep a high deposit and I would not charge you. Overall the timing is good, but the way to use this timing requires new models to be used.

Which will be these new models?

I would think these new models will be based on four parameters—reduction in the cost of manpower, usage of technology to get a distribution reach, collaboration across industry boundaries and use of the Aadhar platform (India’s new unique identification system). Then you can have a model that will be able to reach and serve these people in a sustainable way which will be non-loss making.

In your financial inclusion report you had stressed that there should be a per-transaction cost for the “Aam Aadmi”. Can you tell us more about it?
Today if you want a savings account and if I tell you every time you withdraw money you will be charged, then it sounds bad. You will say it is my money and you are charging me for withdrawal. But let me give you an alternative. When we had done this survey in 2006, we were saying that if you want to have safekeeping then you must pay for it unless you keep a sufficient balance that the bank can make money from it. So many of them said they wanted to keep very small amounts. If you keep very small amount, the bank does not get much float. In that case the bank is giving you safe keeping. If you are willing to pay for a locker, this is another form of locker. This is not a bad thing because this is providing a service at a cost but this is a service that is needed.

In the report you have also talked about financial inclusion index. Can you elaborate?

This is an index which will decide whether financial inclusion is improving or not. There are four needs that must be served — savings, credit, remittance and insurance. Right now no one is measuring that. This index may be used by the government to measure progress.

Watch out for fake notes in Ahmedabad

The next time the person at the deposit counter of a bank suspiciously looks at the notes you have handed him or her, don't get annoyed. For, bank employees have reason to be wary. This is because banks in the city have reported fake Indian currency notes (FICN) to the tune of around Rs14 lakh in the last eight months. fficial figures state that 2,730 fake currency notes were deposited in the city banks, most of which were in the 500 denomination, followed by the 1,000 denomination. Details of all these counterfeit notes have been sent to the Detection of Crime Branch (DCB) which is currently investigating the source and route through which the currency came. HDFC Bank tops the chart as it reported 1,361 FICNs, of which 880 were in the Rs500 denomination. The total amount of FICNs, according to DCB, debited to HDFC Bank and found out amounts to Rs7.18 lakh. Apart from that, 482 FICNs, including 292 in Rs500 denomination and 73 in Rs1,000 denomination respectively were deposited with the Reserve Bank of India. These deposits were made by the customers as well as banks. Interestingly, a fake Rs10 note was also deposited at RBI, a cop from DCB toldDNA. Axis Bank stands second in the chart with a deposit of 742 different fake currency notes in the last eight months. Of this, 387 notes were in the Rs500 denomination while 129 were in the Rs1000 denomination — all amounting to Rs3.24 lakh. Citibank reported the least number of FICNs. “Only one fake note of Rs1,000 was submitted at Citibank,” a police source said. Sources in the banking sector told DNA that the banks which report high number of FICNs are penalised depending on the total amount of such notes deposited with them.

Life turns tougher for the RBI Governor – Arjun Parthasarthy

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Contenders unsure, new bank licence norms delayed

Draft guidelines on new banking licences have been delayed. According to sources familiar with the development, the main reason for this is that many of the comments received by the Reserve Bank of India (RBI) from various stakeholders on its discussion paper on the issue were contradictory in nature. As a result, the RBI could not come out with the draft guidelines by end-January — as it had said. According to a source in Indian Banks’ Association (IBA), the draft guidelines are expected to come out by the end of this financial year now and after that many players who are eyeing a licence might back out because the government and the RBI are expected to come up with some stiff terms on financial inclusion. “The government does not want new players to enter the banking industry and crowd the metros and big cities. Financial inclusion will get top priority in the draft guidelines,” the source said. In its second quarter review of the monetary policy on November 2, the RBI had said that the draft guidelines shall be put up in the public domain by January-end for public comments. In December, the RBI had released a gist of comments on the discussion paper on the entry of new banks in the private sector. It is now almost a year since finance minister Pranab Mukherjee said in his Union Budget speech on February 26, 2010 that in order to extend geographic coverage by banks, the RBI will consider giving some additional banking licences to private companies and non-banking finance companies. Some experts support the delay in granting of licences.  “If the RBI were to really very clearly articulate what is the responsibility rather than the opportunity, it would be more interesting. Then what will happen is that only those who have the long-term commitment to the economy will come forward. So it is better that the draft guidelines come out that way,” said Ashvin Parekh, partner and national leader, financial services, Ernst & Young. In the last one year, the list of players eyeing a banking licence has increased. It includes large corporates as well as medium and small players.

Foreign travel made easier with prepaid cards

As per the Reserve Bank of India guidelines, a tourist can carry foreign exchange up to $10,000 per fiscal, of which only $3,000 can be carried in the form of foreign currency notes and coins.  For the rest, one has to resort to traveller’s cheques or banker’s draft. What if the cheque or draft was misplaced or stolen, or got stuck in baggage that was delayed?  Prepaid travel cards are available in different currencies and can be bought even on the day of travel. The exchange rate for a particular currency is based on what is prevalent on the day the card is loaded.  Though one can get multiple travel cards for different currencies, only one card will be issued for a single currency. One can load up to $7,000 on such cards and carry up to $3,000 in notes and coins. There are three types of prepaid cards —- closed-ended, semi-closed and open-ended. Closed-ended prepaid cards are used for payments meant for a single purpose. For example, the card will be issued to the holder to make payments towards DTH TV bills. Semi-closed prepaid cards are available in physical and virtual forms. A physical card is like a normal debit or credit card and has an account number and password. A virtual card only has an account number and password and can be used for online payments. Open-ended cards combine foreign exchange, travel and gift cards. These cards are issued by banks, travelling agencies and are accepted by all current point of sale (POS) terminals.

Deposit rate on savings accounts: To deregulate or not?

The interest rate on savings bank deposits in India has been at 3.5% since March 2003, before which it was at 4%). In April 2010, the Reserve Bank of India (RBI) had changed the methodology of interest calculation on savings deposits to an average daily basis. For banks, this has effectively increased the savings deposit cost by 50-100 basis points (bps) and overall deposit cost by 10-25 bps. While interest calculation on average daily basis has led to higher earnings on savings deposits for deposit holders, the inflation-adjusted return continues to be negative. Against the 3.5% rate on savings deposits, the average inflation rate in India has been around 5.3% in the last decade, around 5.5% over financial years 2005-10 and around 6.5% over fiscal 2008-11. On multiple occasions, the RBI has expressed its intention to deregulate the savings bank deposit rate and is likely to float a discussion paper on this topic.

Inflation eases, but no one’s ready to bet it’s a trend yet

Headline inflation rate based on wholesale price index (WPI) did show signs of easing when it fell to a two-month low of 8.23% in January from 8.43% in December. But not everyone’s convinced the road heads down from here. Going by the naysayers, high global commodity prices and supply side bottlenecks could throw surprises going forward. “As of now, inflation has probably peaked out. But we will need to keep an eye on global commodity prices and supply side bottlenecks,” said Anubhuti Sahay, economist, Standard Chartered Bank. A Prasanna, economist, ICICI Securities Primary Dealership, said, “In headline terms, inflation is going to ease, but the point is it would not come down too fast. It will come down only gradually.” This means inflation will continue to be a cause of concern for the Reserve Bank of India (RBI). A few economists in fact feel WPI inflation will rise again.  “February 2011 headline inflation can rise back to about 8.50%. Even though food inflation is now easing, non-food inflationary pressures remain strong on the back of rising commodity prices globally, especially energy,” said Gaurav Kapur, senior economist with the Royal Bank of Scotland NV. The strength of inflationary pressures is visible from the fact that despite a significantly high statistical base effect of almost 1.5%, the headline inflation in January eased by just about 20 basis points, Kapur pointed out. According to the economists, inflation will be above RBI’s comfort zone of 7% by March and will be hovering in the 6% zone for the entire 2011, forcing the central bank to keep hiking rates further. “Inflation will be about 6% pretty much during 2011 due to which RBI will be concerned,” Prasanna said. Siddhartha Sanyal, chief economist for India, Barclays Capital sees March inflation numbers at 7-7.5%. “Talking about the bigger picture, the stickiness in inflation still remains. In FY12 also, the inflation will remain sticky,” Sanyal said. All the economists DNA spoke to expected the RBI to go for one more hike in the repo rate and reverse repo rate, of 25 basis points each, in the next mid-quarter review of monetary policy to be held on March 17.

Savak Soharab Tarapore blasts inflation-pussyfooting, says RBI failed so far

Former Reserve Bank Deputy Governor Savak Soharab Tarapore has said the "soft and calibrated monetary policy measures" taken by the central bank so far to batten down runaway inflation have failed and has called for more sterner and concerted steps to tackle price rise that has become a national crisis. "There is no alternative to unequivocal and unswerving policy action to tackle inflation that has now become a major structural problem. The efforts of the RBI in controlling inflation have failed so far," he told at a function organised by research agency Dun & Bradstreet at Mumbai over the weekend.  Warning that the government's as well as RBI's pre-occupation with high growth at the cost of inflation will be counterproductive and disastrous, he called for "a proactive, forward-looking monetary policy to batten down inflation and not the baby-step measures as it has been recently doing." Stating we can't get away from the fact that inflation is all pervasive as it has become generalised, Tarapore, who played a key role during his days at RBI in monetary policy, foreign exchange regulation as well as on capital account convertibility, said, "the over 13 per cent food inflation just cannot be wished away as a supply-side problem." "Even after a 4 percentage point slump last week, the number is intolerably high and gnaws into the vitals of large tracts of the population." Arguing that "there is no soft monetary policy" when it comes to fighting inflation, he blasted the belief gaining currency among policymakers that it is possible to curb price rise by resorting to small, calibrated steps thus not hurting growth. "You can't slay the dragon of inflation without hurting growth," he said, quoting economist CA Yandle.  "There is an element of disenchantment with inflation targeting at RBI now. This does not mean it cannot wield a strong monetary policy to control inflation," Tarapore said. "If the timely action is delayed and inflation rises to unacceptably high levels, the monetary policy required is very harsh, as a cold turkey approach becomes inevitable." Stating that the most important remit of any central bank is to keep inflation low, he said, since the Reserve Bank cannot keep prices low by producing more goods, it must ensure that there isn't too much money in the system chasing too few goods. Pointing out that the consumer price index-based inflation is the globally accepted measure of price rise, he said, "the WPI-based inflation, which we follow even now, is a poor indicator of inflation at the grassroots level," and lamented that we are yet to have a consumer price index (CPI), which can be used for policy purposes. Quoting an NCAER study, he said as many as 40% of the households account for only 14 per cent of income, but spend as much as 63% of their incomes on food, leaving little for saving. On the other hand, the top 20% account a vast 52% of total income and bulk of savings and also 45% of aggregate non-food consumption. Warning that the biggest treat to the high growth story is the inflation spiral, he said, "given the large number of the poor in our country, a 6-7% sustained growth with a 3-4% inflation would be preferable to a 9% growth with a 9-10% inflation. "High economic growth with high inflation is not a sustainable policy option," the eminent economist and monetary policy expert concluded.

‘Cheque bounce cases at place of transaction’

The Delhi high court has ruled that cases of cheque bounce can only be entertained by courts at the place of transaction. The ruling has come in response to an appeal filed by Zeenat Insaf, a resident of Mumbai. She had challenged a Delhi trial court’s jurisdiction to entertain a complaint by Dr Sudanshu Bhattacharya, a cardio thoracic vascular surgeon in Mumbai. Bhattacharya had operated upon Insaf’s father at Breach Candy Hospital.  She had made a payment through a cheque of a bank located in Mumbai. Bhattacharya gave the cheque before his bank in Mumbai. The cheque bounced. The cardiologist contacted his lawyer in Delhi. He sent a notice to Insaf. A complaint against her was filed before a Delhi court on the grounds that the lawyer who sent the notice was located in Delhi. The Delhi high court said that sending a notice from Delhi would not confer jurisdiction on Delhi courts. Delhi courts have no territorial jurisdiction to entertain and try complaints filed by a respondent who is based in Mumbai.