Money remittance facility for Nepalese workers

KANPUR: Migrant Nepalese workers can now send money faster from India to relatives or family members staying in any part of Nepal through Indo-Nepal remittance facility. Rajeev Dwivedi, RBI Deputy General Manager (Banking) said that Nepalese workers can receive money in cash or in bank account in Nepal through the branches of Nepal State Bank or the approved agents. The DGM said that Nepalese workers may send upto Rs 50,000 per remittance in India while the peers or family members will receive the amount in Nepalese rupee. He said that they can send money as many as 12 times in a year through this facility. The cost of this facility is Rs 25 to Rs 100. The cost will vary depending on the value of transaction and the manner in which friends or family members of migrant worker receive the funds. "To send the money through Indo-Nepal remittance facility, they do not need a bank account. This facility is available to both customers and non-customers of the banks at around 80,000 national electronic funds transfer (NEFT) enabled bank branches. They may contact the nearest bank branch for more details," Dwivedi added.

TOI

Bank not responsible if ATM misused: Consumer forum

New Delhi: A person cannot claim damages from bank if he fails to immediately block his lost ATM and money is unauthorisedly withdrawn by using the card, a district consumer forum has said. It said the bank would have been liable if the transaction of withdrawal of money took place after blockage of the card.A bench of Central Delhi District Consumer forum passed the order while dismissing a complaint filed by a Faridabad resident Deepa Singh alleging that bank is liable for the compensation as it allowed illegal withdrawal of money from her account after she lost her ATM. “Singh was having the PIN number and without that PIN number, the ATM card could not have been used. First the money was withdrawn and only thereafter the bank was informed to block the card.The bank complied the instructions of the complainant. The bank would have been liable if transaction of withdrawal of the amount would have taken after the blockage of the card by it,” the forum said.The forum presided by its president B B Chaudhary also refused to pass any order against the bank for its failure to provide her video footage of the person who had used her ATM. “The bank cannot be held liable merely because it could not provide the CCTV footage of the relevant time of the withdrawal of money. The CCTV is a machine and it may not function at a particular time,” it said.  The forum further said that the PIN number of the ATM card was only with Singh and without it money could not have been withdrawn and the bank was told to block the card only after the amount was withdrawn. Singh had submitted that at the time of issuance of card, the bank had assured her that if somebody would withdraw money from her account without her knowledge, it would provide her video clipping but in July 2010, the bank informed her that the camera was not working at the relevant time and video clippings could not be provided. But the forum was not satisfied and dismissed her plea saying, “only card holder can be held responsible if the ATM card/Debit card is misused fraudulently.”
Sikkim Reporter

ICAI for branch-level audit of private sector banks

......... Until 2005, the RBI used to directly appoint statutory auditors in public sector banks. Since then, it has been allowing bank boards to select their preferred auditor from an RBI-approved panel of audit firms. The ICAI had criticised the practice, saying it left auditors at the mercy of bank boards and compromised their independence. The RBI is yet to change its position with respect to this autonomy to public sector banks.

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Prayers for rate cut may be answered in Jan, but 2012 will be a tightrope walk

After 13 rate hikes and a pause in its last policy review on 16 December, the general view taking hold is that the Reserve Bank of India (RBI) will likely begin cutting rates even before April 2012, given the dovish tone of its latest review. But 2012 will be be a major tightrope walk for policymakers and the RBI if a growth rate of around 7 percent is to be maintained. Contrary to earlier expectations, analysts are now betting that an easing of the monetary cycle may actually begin earlier in the January-March 2012 quarter, and not after April 2012. Citi, for instance, has predicted that the RBI will have to begin the easing cycle around the first quarter of FY13 (2012-13). “The deceleration in growth coupled with a moderation in sequential inflation will likely result in the RBI easing by 100 bps in 2012 versus 50 bps expected earlier. (Note: 100 basis points make 1 percent). Growth slippages also raise the odds of an advancement of the easing cycle to 4Q FY12 (January -March 2012) vs 1QFY13 (April-June 2013),” says Citi economist Rohini Malkani in a report, referring to the RBI’s statement that the downside risks to the central bank’s own growth projections had increased significantly. “The RBI has raised rates 13 times so far, with effective policy tightening at 525 bps (with the repo rate currently at 8.5 percent). During this time, while WPI has remained elevated at 9 percent plus, GDP growth has come off from 9 percent to (around) 7% percent,” notes Citi. Goldman Sachs, on the other hand, has said that the first repo rate cut will, in fact, be effected when RBI takes stock of its policy on 24 January. “Given the dovish tone adopted by the RBI and the rapidly deteriorating growth environment, we bring forward our forecast of the first repo rate cut to 24 January from March. Our December inflation forecast is currently 7.8 percent, materially below the 9.1 percent in November, while our FY12 GDP growth forecast of 6.9 percent (well below the RBI’s current forecast of 7.6 percent) has downside risks, says the Goldman report. “With the focus on growth slowdown that the RBI has adopted, we think there is little reason for the central bank to wait till March before a rate cut. We are forecasting an above consensus 150 bps of rate cuts in 2012,” says Goldman’s Tushar Poddar. Indranil Pan of Kotak Mahindra Bank says: “We believe that estimated GDP growth for FY2012 could be lower than 7 percent and could lead the RBI to start cutting the repo rate at its annual policy statement for FY2013.” Be that as it may, by all accounts economists and analysts reckon the coming year will be tough despite the attempts at monetary easing. A slowing economy will make life tougher, says Malkani in her analysis. There’s limited manoeuvrability on the domestic macroeconomic front. Pointing to the limited ammunition (in comparison to 2008) that Indian policy makers now have in the event of a crisis, the Citi report says this is on both the fiscal and monetary fronts, where higher deficits and stickier inflation would limit the space for conventional policy responses. On the monetary front, persistently high inflation reduces the likelihood of rate cuts coming as rapidly as they did during the previous crisis. Pointing to the fiscal side, it says : “During the previous crisis, the deficit had consolidated to 4.1 percent of GDP in FY08. This gave the government enough fiscal space to take stimulus measures.” But this time is different.

Twelve tasks for 2012

Rohini Malkani of Citi says in her report that 2012 will need to see 12 tasks undertaken to keep growth even around 7 percent:

1. Incentivising investments – Resolving power, mining, land issues

2. Foreign capital – Measures to attract flows

3. Inflation – Addressing structural issues

4. Fiscal – Some efforts towards consolidation

5. Politics – Current model of governance needs a revamp

6. Battling corruption and electoral reform

7. Improving data quality and dissemination

8. Labour reforms – Key to avoiding a demographic nightmare

9. Employment – The National Manufacturing Policy could help

10. NREGA – More productive work; putting funding to better use

11. Urban infrastructure – Key for balanced growth

12. Vigil on non-performing loans (NPLs) – To prevent negative feedback loop

Firstpost

Inflation indexed bonds, please

......The RBI probably fears that the auction-based sale may set higher yield expectations from buyers, making this costly in comparison to a nominal bond sale. Moreover, such bonds are focused on the retail customer, but in India, majority of bond investors are institutions..............

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2011 — When macro events ruled markets

..............The RBI, in its Macro Economic and Monetary Development quarterly report, holds a positive view on agriculture prospects for 2011-2012, with above normal southwest monsoon and equitable spatial distribution. This said, with a high base effect, this sector may find it difficult to outdo the bumper numbers of last year. The Survey of Professional Forecasters conducted by the RBI has, in fact, revised its agricultural growth expectations lower to 3.2 per cent for 2011-12.

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Spoilers for MFIs’ fund-raising plans despite RBI move

Mumbai: The microfinance industry is unlikely to get much respite from the recent RBI decision to increase external commercial borrowing (ECB) limit for them, as the rupee fall and the bad financial health will act as spoilers to their fund raising efforts, say industry experts. “Though increasing the ECB limit is a step in the right direction taken up by the regulator, it is difficult to raise money from overseas now due to the sharp volatility in the rupee,” a top MFI officia said. Without proper hedging, it will be difficult to take such kind of exposures which will impact the balance sheet of MFIs, he added. The official also pointed out that it is difficult to convince foreign investors to put in money at a time, when the domestic business is not doing good. “The health of MFIs is not good after the Andhra Pradesh Ordinance last October. Unless the issues relating to the sector are sorted out, it will be difficult to raise money overseas,” he said. The Reserve Bank last week increased the ECB limit for MFIs to $10 million in a financial year from $5 million earlier and also allowed ECB credit by international banks, foreign equity holders and overseas organisations into the domestic MFIs. Another industry official said the raising the ECB cap is a good step in the medium-term. “Increasing the credit limit through ECB window is definitely a good step by the RBI. However, one can’t see it in isolation. Without the sophistication of dealing with a volatile currency, MFIs will not able to raise money at now,” Bangalore-based Janalakshmi MFI chairman Ramesh Ramanathan pointed out. He also said without domestic credit flow to the sector, these solutions would not be very effective to solve liquidity issue. Ramanathan, however, noted that this step will be beneficial to the industry in the medium-term. Following a spate of suicides by harried MFI borrowers after being allegedly harassed by collection agents of MFIs, Andhra Pradesh, the largest MFI market with over a quarter of the Rs 20,000 crore micro advances, issued an Ordinance, which strictly regulated the collection and lending practices of microlenders. Later on, AP passed a legislation to effect the Ordinance into an Act.These regulations had a very debilitating impact on the industry as borrowers refused to pay up, leading to a credit crisis in the industry. Their woes escalated when banks refused fresh loans as these micro lenders were forced to default on their debt servicing.

Firstpost

RBI to introduce plastic currency

VIJAYAWADA, DEC 23: The Reserve Bank of India ( RBI) will soon bring into circulation ‘ plastic currency’ on an experimental basis. Disclosing this here last night, while addressing a programme, RBI Governor D Subba Rao said the environmental clearance was obtained for the experiment. He said the proposal of plastic currency had been there for 15 years and would be conceptlised on experimental basis soon. He said he had got opinion from people that preserving of plastic currency might be difficult for the rural people. He said the RBI was advising banks not to circulate mutilated and torn notes as it got complaints from the general public. Subba Rao said it was utmost responsibility of the RBI to ensure that all banks functioned well. If a bank incurred became bankcrupt, it would affect other banks too, he added. He informed that in Andhra Pradesh, out of 6,600 villages 5,800 villages had bank branches or bank correspondent under the programme of 100 per cent financial inclusion. “Opening bank account alone is not sufficient. They should be operated which is the objective of the scheme,” he said and asked the bankers to ensure the villagers operate their account. 

Meghalaya Guardian

Pastures turn greener for NRIs

.....However, non-resident Indians should also take into account that the weakening of the rupee, if it continues, has the potential to eat into their returns on maturity................

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Banks hike interest rates steeply to lure NRE deposits

.........The Reserve Bank of India's move to deregulate interest rates on non-resident external (NRE) rupee deposits and ordinary non-resident accounts has encouraged banks to attract dollars. Many banks have announced a steep increase in interest rates on fixed deposits held by non-resident Indians ..............

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Credit where it's due

Bimal Jalan on the challenges ahead for the banking system

So far as India's banking sector is concerned, I think there has been large growth and it is regarded as one of the best in the developing world for the reason that we adopted a policy measure quite some time ago as a country that we should follow the best international standards, whether you are public sector or private sector. That is very important in terms of capital adequacy, in terms of provisioning of bank loans, in terms of whatever definition you have. Because earlier, you know, in the eighties, early nineties and so on, it was thought that the public sector had special characteristics and you don't have to abide by those rules. If you go by those rules, there was enough room in terms of capital adequacy. But it is very important for an internationally functioning financial system, whichever institution it has, either public or private sector, that it conforms to the best rules. And as you probably know insofar as the banking system is concerned, that is what you might call the vanilla banking sector as an entity which takes deposits and lends. Not the American type of banking system, which has got subsidiaries and collateral deposits and the kind of crisis that they had. But now now I am talking about the end of the nineties and early 2000s. When there is a Bank of International Settlements in Basel, of which a number of countries are members and they have international norms regarding the capital adequacy. Then if a loan has been rescheduled, you couldn't say that it is a non performing assets or NPAs. But if it has been rescheduled because of the default in payments, then it is an NPA. But talking about the commercial banking sector that India's NPAs are, in comparison with the rest of the world, somewhat better. All the indicators of what a good banking system is, we would meet those standards. It is a different point about interest rates and I'm leaving that apart. But even there, in terms of spread, that is, the cost of banking is how much you charge above the minimum interest rate. It would compare quite favourably with the rest of the world. In terms of the cost and the cost of raising deposits, for example, the different segments in our system, the cross subsidisation of rural banking from normal banking, I don't want to go too much into it. My point is that India's banking system is among the best and we have avoided being over-exuberant. As you can see, the 2008 rate crisis affected the profits of the banks, but we didn't go haywire. We did not adopt the kind of mess, the kind of subsidiaries, collaterals and the kind of investment banking systems that some parts of the world like the US adopted. Now all of them are considering a conservative, straightforward system, where a bank is a bank. And the most distinguishing point about a bank, which you must remember, is that banks themselves, irrespective of what capital they have, the reserves they have, are dealing with other people's money. You and I deposit money into the bank and the bank lends it to somebody else. The lending decision is made by the bank. They are using our money to re-lend as it were. So this is the distinction between say the banking system and some other types of financial system, say stock exchanges. So my summary point is that, the Indian banking system is by any reckoning regarded as exceptional. It's a sound, rule-abiding banking system. It's not that there are no defaults and no problems, but in aggregate. Some banks will show high profits and some low profits, but that is a separate issue altogether. I think very well of our financial system as a whole and the banking system in particular. Regarding the proposed banking laws amendment bill Act 2011, which is pending approval in Parliament, I have not studied this legislation very closely. It isn't fair for me to make a comment, given my earlier association with the banking system. But some parts of it are certainly good. For example the subsidiary idea is a good idea. But of course it has to be reciprocal in some sense. We have to have same freedom to expand our banking system abroad. And that is the way the banking system works. For the rest I have not studied it very closely and I wouldn't like to make any comment. When it comes to allowing more private banks to open in the country, I don't think it's an issue so long as standards are upheld. The most important thing that we must remember is again that we are dealing with other people's money. And therefore you need some rules of the game, as it were, that if you are borrowing from banks, or if you are doing something which is creating liabilities on the banking system as a whole, then you have to be careful. The same principle was adopted when we introduced the licensing system for new banks a few years ago. I am all in favour of it. But we have to make sure that there is no conflict of interest. There are many dimensions and the rules are the same and the third and utmost important point is that there must be close surveillance, in terms of transparency, responsibility and accountability. Then you have the issue of financial inclusion, and bringing un-banked people into the system. There is simply no question that RBI has given this objective of financial inclusion the highest priority. Because it is not only the interest rate question, everybody needs financing if you are in business or farming or any other productive enterprise. There will be a time gap between the return and the investment you make. There is no question that it has to be one of the highest priorities. I am very glad that RBI has given it the highest priorities. But at the root of it there are issues, in the sense that with the expansion of literacy, you have to improve communication skills so that even people in rural areas can access the banks on their own and it can be done. India has been able to launch its mobile telephony. That is my favourite example that we started with a PCO (public call office), where anybody could make a call and then mobile telephony. So the scope is tremendous and I am absolutely sure that it can be done and it will be done. But we have a very long way to go. In the last 15 years what has happened in the mobile telephony or access to communication and access to banking system, well these two are not comparable in terms of cost. If you set up a branch, it costs a great deal of money and to be viable, it has to return the money. But what I am saying is that it can be done. In fact it has to be one of the highest priorities and just as with education and health and other things we are trying to make forward strides. So this is another area of great importance in my mind.In theory, it's great that we're seeing informal money transfers happening in un-banked areas through media like the mobile phone. But in practice it's of utmost importance to have security check-ups. If I have your phone number now, I can use it to transfer money from your bank account to somewhere else. Then you need to evolve a system of cross checks and also make sure that the scope for any falsification of your identity is as narrow as it can be, and now obviously we have other things this is going to improve hopefully. We have to create a system which is consistent with the security aspect so that the mobile telephony cannot be misused. Hacking is becoming a primary issue and not only in our country. So we have to learn as we go along. I would go slowly rather than hasten, as security is of utmost importance, particularly for poor people and less well-off persons even in urban areas. SAThere is no straight answer when it comes to how the role of RBI will evolve in future years. It depends on how well you do this job. There are always trade-offs. So therefore the trade off in the RBI business or anywhere like inflation or growth, there is a trade off and you have to strike the trade off correctly. The rest of the world is also coming around to the view that the banking system, the pure banking system, has to be in some way guided, related, supervised and assessed by the central banks. Because central banks are creators of money. And they have the ability and authority and experience to supervise the banking system. So I am in favour of that. Even those who have separate financial authority are coming back to the model, America for example. I have no doubt that it will be good for banks which are dealing with other people's money and where interest rates are vital, to be part of the regulatory system. The RBI shouldn't interfere in the day to day. But it has to make sure that your and my money is safe, that the credit-deposit ratio is under control. All these things are very vital in making the banking system good, and something persistent and long term. So I am in favour of such a system and there also RBI, if I may say so, has made tremendous amount of progress. There is no day-to-day intervention and that should be avoided. We should make our process even more at arm's length from the RBI. The RBI should not be involved in management of banks. Our system works, it is working reasonably well, and while nobody can say it is a 100 per cent model, but no other system around the world works as well. We can say that our financial system is much more stable than many other countries'. We have to make sure that the supervisory, regulatory system is transparent and accountable, and is at arm's length. RBI should get into management of banks, or be on their boards and things like that. In terms of the future, I will say the biggest challenges that any well-functioning, good banking system, which we are: one, financial inclusion, two, making our banking system much more integrated with the financing of the small and medium sector as well as the rural sector. The small and medium sector is of utmost importance to my mind. So you should have a kind of banking system that is approachable by any enterprise, which is productive. All this will take time and we can do it. And one of utmost importance is of technology induction. So the banking system becomes more or less paperless, if possible, but with security. It is not an easy task, but it is a challenge we have come to and will meet over a period of time.

Business Today

RBI Governor, S.M. Krishna visit Tirumala



Thanksgiving :

RBI Governor D. Subba Rao with wife Urmila offering prayers at the Lord Venkateswara Temple in Tirumala on Friday



The hill temple of Lord Venkateswara witnessed the visit of two VVIP devotees on Friday — Minister for External Affairs, S.M. Krishna and the Governor of Reserve Bank of India, Duvvuri Subba Rao. While the MoEA was here on a pilgrimage-cum-official programme — to declare open the new premises of the passport office at Tirupati, the RBI Governor Dr. Subba Rao was purely on a pilgrimage and he has even subtly declined on that ground to speak the media, as they tried to take a few bytes from him as he came out of the temple after their morning darshan. The two dignitaries visited the temple separately accompanied by their spouses and other family members and were given a warm welcome by the temple authorities as they reached the Mahadwaram. As is the custom in the Tirumala temple, after paying their obeisance to the Lord, they went round the precincts of the shrine and were later seated at the Ranganayakula Mandapam where the temple authorities presented them with the Lord's prasadams even as priests blessed them with long life and prosperity reciting verses from the scriptures. 

HBL

Inflation biggest challenge for RBI: D Subbarao

VIJAYAWADA: Stating that effective management of inflation is the biggest challenge lying ahead of the Reserve Bank of India, bank chief Duvvuri Subbarao said that there is no meaning in achieving double digit growth rate when 80% of the population is still burdened by high prices. Speaking at a seminar organised by the Andhra Chamber of Commerce and Industry ( here on Thursday, Subbarao said that RBI was closely monitoring the markets and taking steps to put the economy on the rails. "I am still hopeful of achieving a double digit growth rate at the end of this fiscal. However, I set the target only at 6% as the international markets are volatile and not giving any clue as to how they would take change," he said. Subbarao claimed that India has the capability of achieving 10% growth rate despite small hiccups. He said that it would be a great moment if the nation pulls off 10% growth rate soon. Referring to the repeated complaints from the industry, the apex bank chairman defended that increasing the interest rates was a compulsion when the inflation was going high. He said that the RBI was forced to hike the interest rates at least 13 times in the past two years, which helped the bank in bringing the inflation down to around 9%. "Inflation would have been anywhere around 12-14% had we not raised the interest rates on the loans," he explained. He said that the growth rate would be considered good only when the nation's inflation was also in limits as rising inflation affects more than 80% of the people. "In fact, pensioners and small depositors have always been complaining about poor returns. How can we pay them better if not by raising the rates on industry?" he asked. He, however, assured the industry captains that the RBI would look into rationalizing the rates after completely steadying the boat of inflation that is floating on the waters. He said that they wanted to reduce the inflation rate to around 7% by March end, which would help them taking some bold decisions. Refusing to divulge the strategies on managing the falling rupee value, Subbarao said that RBI was closely watching the situation. "No central bank would like to disclose whether it really intervened in the markets to steady its currency or not. It would come to light only after two months," said Subbarao. He said foreign investors were adopting the wait and watch policy resulting in tough situation in the stock markets. "This situation made the US dollar an attractive option for the investors (foreign) making the rupee weak," he told the gathering. He said that massive purchase of dollar in future markets was also complicating the markets. Earlier, he said that incomes of rural people too have increased considerably making them aspire for quality of food. He said that such a trend, though good, too had forced the inflation to go high. He said that people from all areas were spending a lot on expensive food and valuables. He added that people need not take the depreciation of rupee value as damage to their self-dignity. "Prices of potato go up and come down. Similarly, rupee value too," he observed. 

TOI

Fake currency notes found from Bank of India during audit

Barabanki, Dec 23 : Fake currency notes with a face value of Rs 46,500 have been found in the currency chest of the main branch of Bank of India in Kotwali police station area here, police said today. Bank manager Jagdish Prasad in a complaint with the police had stated that during the audit carried out a month ago, 86 notes in the denomination of Rs 1000, Rs 500 and Rs 100 were found to be fake, police said. A team from Reserve Bank of India today checked the notes and found them to be fake and have sent them for forensic examination, they added.

IBN Live

RBI slaps Rs 5 lakh penalty on Gondal Nagrik Sahakari Bank

MUMBAI: The Reserve Bank has imposed a penalty of Rs 5 lakh on cooperative sector lender Gondal Nagrik Sahakari Bank for its failure to adhere to guidelines on disclosure of loans to directors. "The RBI has imposed a monetary penalty of Rs 5 lakh on the Gondal Nagrik Sahakari Bank Ltd... for granting loan to directors, not correctly reporting loans to directors to RBI in the statutory returns on advances to directors...," the apex bank said in a statement. Gondal Nagrik Sahakari Bank was also found guilty of not submitting cash transaction reports to the Financial Intelligence Unit-India (FIU-IND). The RBI had earlier issued a show-cause notice to the bank in response to which the bank submitted a written reply. "After considering the facts of the case and the bank's reply as also personal submissions in the matter, the RBI came to the conclusion that the violation was substantiated and warranted imposition of the penalty," the statement said. 

ET

Maintain your pre-eminence, Duvvuri tells entrepreneurs




Expert talk:

RBI Governor Duvvuri Subba Rao speaking at an interactive session in Vijayawada on Thursday

 

The industrialists of Krishna district are front-runners in small-scale and minor industries. Vijayawada was the first of the smaller towns in the country to get an Autonagar. “The industrialists and entrepreneurs here should maintain their pre-eminence,” said Reserve Bank of India Governor Duvvuri Subba Rao. Addressing the Andhra Chamber of Commerce and Industry here on Thursday Mr. Subba Rao said that the service sector was also very strong in the city. “For the past 60 or 70 years you have shown that you can come out in flying colours and emerge number one in competition,” he observed. He launched a website of the Andhra Chamber of Commerce before speaking on ‘India – Growth and inflation—what we know and don't know'. Andhra Chamber secretary Chukkapalli Ramakrishna Prasad said that the association through its members was taking several steps to reduce inflation. President of the chamber Muthavarapu Murali Krishna said that it was through the efforts of the Andhra Chamber that various airlines were operating eight flights to the Gannavaram airport and soon the number would go up to 13 and about 600 passengers were using the airport daily. In the evening Mr. Subba Rao delivered the prestigious Dr. Jandhyala Daskhina Murthi Memorial Trust lecture on “RBI in every one's life”. National Statistical Commission chairman R Radha Krishna presided over the programme. Former mayor and trustee Jandhyala Sankar and more trustees C. Nageswara Rao, C.V.K. Prasad and M. Subrahmanyam were present. 

HBL

Saving account rate hike could put pressure on banks’ margins

.....“Banks are likely to partially offset the impact of the increase in interest cost by levying transaction and servicing charges and thus pass on the additional cost to the customer.” ...........

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SUUTI plan not enough

........... “Most banks may not have enough headroom in their capital market limits to fund the kind of amount the government is looking at. They may have to seek relaxation from RBI,”..............

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K.C.Chakrabarty: Creating MNCs of Tomorrow

Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. It is the cash flow that matters. A business that grows fast devours cash. Constant investment have to be made to just keep even.

In a developing nation's economy, it's the small and micro enterprises (SMEs) which play a vital role. If India has to have a growth rate of 8-10% for the next couple of decades, it needs a strong micro and small sector and micro entrepreneurs need to be nurtured. They not only give employment to a large number of people but also support bigger industries by supplying raw material, basic goods, finished parts and components, etc. The felicitation of micro entrepreneurs today, is not to be mistaken as the ultimate goal of the enterprise. It is in fact, only the beginning of its process in achieving greater heights. A small enterprise today will be a big enterprise tomorrow, and might well become a multinational enterprise eventually, if given the support, among others, to build their skills and knowledge levels. In MSME sector, the failure rate may perhaps be relatively higher - the reasons for which range from delayed/inadequate availability of credit to non-availability of backward and forward support system. Despite the risk, financing of first time entrepreneurs is a must for financial inclusion and growth. Thus, the banks and other agencies should take pride while servicing the micro entrepreneurs as they are playing an instrumental role in the formation of MNCs of tomorrow. There is a need for sensitisation of the bank's staff towards the needs of small entrepreneurs. The banks should develop systems such that the field staff is regularly updated and is equipped to appraise the financial requirements of small enterprises. The banks may use the platform provided by the technical institutions and send their staff to such institutions on a regular basis. Training is also required to be imparted to the branch managers and their loan officers for change in their mindset away from the perceived risk in financing micro and small enterprises.

Lessons from Emerging Countries

We should learn from the experience of Korea which has now become a leader of many globally important brands. However, barely forty years ago, Korea had no industry at all. The Japanese, who ruled Korea for decades, did not allow any. They also did not allow any higher education, so there were practically no educated people in Korea. By the end of the Korean War, South Korea had been destroyed. Today Korea is world -class in two dozen industries and the world's largest in ship building and other areas. Not far behind Korea is Taiwan, which like Korea was preindustrial in 1950. Today, Taiwan is a world leader in a number of high- tech areas, including microchips. Entrepreneurship and innovation are the key drivers of success in these two counties and turned them into world class manufacturers and industry leaders. The Koreans have set up small groups of their brightest people to systematically apply the discipline of innovation to identify and develop new businesses. Innovation requires us to systematically identify changes that have already occurred in the business - in demographics, in values, in technology or science - and then look at them as opportunities.

Four Pitfalls to Avoid

Many new businesses start out with high promise but suddenly run into trouble after a year or two. There are four typical mistakes entrepreneurs make and all four are foreseeable and avoidable. Here, I draw extensively from what Peter F. Drucker has very rightly pointed in one of his books. He said that there are four typical mistakes entrepreneurs make. Firstly, majority of successful new inventions or products do not succeed in the market for which they were originally designed. To illustrate the point, I would like to tell you of a man by the name of John Wesley Hyatt who invented the roller bearing for the axles of railroad freight cars. The railroads, however, were not ready for radical change; and Hyatt went bankrupt. Then Alfred Sloan, the man who later built General Motors, asked his father to buy Hyatt's bankrupt business. Unlike Hyatt, Sloan was willing to broaden his vision of the product. It turned out that the roller bearing was ideal for the automobile, which was just coming to the market. In two years Sloan had a flourishing business; for twenty years Henry Ford was his biggest customer. Similarly, very few would know that Novocaine was invented by a German chemist, Alfred Einhorn for use as general anesthetic in major surgery but it was not found suitable and ultimately it was used successfully by dentists. In fact, Peter Drucker had said that majority of successful new inventions or products do not succeed in the market for which they were originally designed.

Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. It is the cash flow that matters. A business that grows fast devours cash. Constant investments have to be made to just keep even.

When a business grows, the person who founded it gets too busy. Rapid growth puts an enormous strain on the business. It outgrows its production facilities and management facilities. The quality falls, customers do not pay and deliveries are missed. The best way to avoid a crisis is to create a management team. Young entrepreneurs cannot pay to bring in a management team. So it is necessary to identify the core competencies of the people working with you. One may be good at marketing, the other, say in, customer service. They have to be utilised for their respective competencies to be able to deliver their optimum. This planning should take place well in advance.

Lastly, when the business is a success the entrepreneur needs to ask what the business needs at this stage and whether he is concentrating on the right things. While entrepreneurship starts by putting himself before business and questions that are at the forefront is " What do I want to do?" or " What is my role?" , but when it succeeds the right questions to ask is " What does the business need?" and " Do I have these qualities? ". As successful entrepreneurs, having gained experience and wisdom from past mistakes, going forward, it is necessary to ensure that the same mistakes are not repeated. First generation entrepreneurs can also take a lesson from the successful entrepreneurs to avoid committing the same mistakes.

Support from all stakeholders

There are ample opportunities in small businesses in India and such opportunities will transform the country in the coming future. For such transformation to happen there needs to be support from all stakeholders, government, banks, corporate, regulators, civic society, etc. Technology universities may be set up and the government can tie up with the best in the world to help in research. We need to harness entrepreneurship and look at skill building. A scheme for utilising NGOs to provide training services to tiny micro enterprises could be encouraged. Entrepreneurship development is important in view of its visible impact on wealth creation and employment generation. To facilitate and encourage this, skill building has been impressed upon by the Prime Minister's Task Force for MSMEs. Enterprise Development Centres (EDC) should be set up by the Central/State Governments with incubators to provide training not just for setting up of new units but also to provide continuing education on different aspects like product design, packaging, technology upgradation, financial management and marketing. Entrepreneurship development is the key factor to fight against unemployment, poverty and to prepare ourselves for globalisation in order to achieve overall economic progress.

(Abridged version of the keynote address by Dr K. C. Chakrabarty, Deputy Governor, RBI at the Citi Micro Entrepreneur Awards at NCPA, Mumbai. Full text can be accessed from www.rbi.org.in)

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