Money & Banking
Bank union opposes payment bank license to private sector
According to AIBEA, if private payment banks are allowed to collect deposits, then the cost of banking services as well as interest rates on small and priority sector loans in public sector banks will go up
 
All India Bank Employees' Association (AIBEA) has opposed the licensing to payment banks in private sector, calling it an anti-public move. "The Government is trying to dilute public sector banks (PSBs) and boost private banks in the name of banking reforms," says CH Venkatachalam, General Secretary of AIBEA, in a release.
 
Earlier this week, the Reserve Bank of India decided to grant "in-principle" approval to 11 entities to set up payment banks. These includes, Aditya Birla Nuvo Ltd, Airtel M Commerce Services Ltd, Cholamandalam Distribution Services Ltd, Department of Posts, Fino PayTech Ltd, National Securities Depository Ltd, Reliance Industries Ltd, Dilip Shantilal Shanghvi (Sun Pharma), Vijay Shekhar Sharma, Tech Mahindra Ltd, and Vodafone m-pesa Ltd.
 
Mr Venkatachalam said, "At a time when Government wants to ensure that banking services reach everyone, the need is to strengthen and expand public sector banks which alone take care of the concerns of the common people and their banking needs; as such private banks are being encouraged. We know the history of such small private banks in the past which have cheated public savings and vanished from the scene. In India savings of the people is an import of the social capital and one cannot afford to play with this. Public savings should be fully regulated and controlled by the Government in the interest of our country and the common masses."
 
According to the bank employees' union, the move (to allow payment banks) is nothing but a direct attempt to boost private sector banking and to minimise the role of public sector banks as well as to reduce the market share of public sector banks. "Public sector banks in India have done yeoman services in changing the banking profile and transforming from class banking to mass banking. Our economy was saved from global financial and banking crisis only due to the reason that our banks were insulated by Government-controlled public sector banks. Our strong banking regulations helped in sparing the country from a major financial disaster. But in the name of banking reforms the Government is trying to dilute PSBs and boost private Banks," it said.
 
Raising the issue of increasing non-performing assets (NPAs) in PSBs, Mr Venkatachalam said, "Because of the colossal private corporate delinquency, public sector banks are saddled with huge bad loans of nearly Rs6 lakh crore. As on 31 March 2015, there are 7,035 cases of wilful defaulters, involving bad loans of Rs58,792 crore.  The bad loans in the banks as on 31 March 2015 has risen to Rs2,97,000 crore excluding another Rs4,03,004 crore of bad loans of 530 corporates shown as rescheduled and restructured loans under the corporate debt restructuring (CDR) scheme. Bad loans struck up in top 30 borrower accounts of PSBs as on 31 March 2015 is Rs1,21,162 crore." 
 
"All these are private corporate companies who had defaulted (PSBs) and it is strange that RBI and Government want to encourage the very same private sector to start banks? Further, because of the thinning of margins and profits, Banks are striving hard to fetch low cost deposits like savings and current account and every bank is concentrating on current account and saving account (CASA) deposits as the main route to improve their cost of funds and profitability."
 
"CASA Deposits/ Savings deposits of the common people are like oxygen to the Banks. At this juncture, giving license to such private companies to start payment banks whose main job is to collect savings and current account deposits will cut at the roots of the public sector banks," Mr Venkatachalam added.   
 
According to AIBEA, if these private payment banks are allowed to gather the savings and current deposits of the people which are of low cost, public sector banks will be deprived the same and hence the cost of banking services in PSBs will increase and rate of interest on small loans and priority sector loans will also go up. Allowing such Banks in the private sector is anti-public sector banks and in the long run anti-people, it said.
 
Opposing the move, the bank employees union has urged the government to stop this policy. AIBEA said it will write letters to the RBI Governor and Finance Minister requesting them not to go ahead with the policy.  

User

COMMENTS

Anurag

1 year ago

Banks have been looting general public while creating cartel and keeping Savings Interest at lower. The new step might help general public.

Meenal Mamdani

1 year ago

It is funny that the union opposes a sound financial move simply to assure the primacy of their employers, the PSBs. This is a very short sighted stand.

The new payment banks will not be giving any loans, unless it is in the form of an overdraft on the accounts. Yes, eventually many years down the line, they may make links with existing banks to offer loans for their consumers. Even then, the size of the loan could be capped so there would be less risk.

The need of the hour is greater financial inclusion for the masses. Bank employees cannot ask for continued protection for their jobs by damping down competition.

Innovation in business is overrated: Indian-origin researcher
Innovation in business is overrated: Indian-origin researcherDrawing an analogy between how Formula One (F1) racing teams and businesses function, a new study co-authored by an Indian-origin researcher has found that big changes usually do not deliver as much value for businesses as incremental changes.
 
"The conventional wisdom that companies need to embrace change is often wrong," said co-author Jaideep Anand, professor of strategy at the Ohio State University's Fisher College of Business.
 
Using data from 49 teams over the course of 30 years of F1 racing, the researchers found that the teams that innovated the most, especially those that made the most radical changes in their cars, were not usually the most successful on the race course.
 
"We found that it was not always good to be the aggressive innovator," Anand, an alumnus of Indian Institute of Technology (IIT), New Delhi, said.
 
According to Anand, F1 racing is a very good venue to take lessons on innovation in business.
 
The innovation-intensive industry's teams of engineers, drivers and sponsors work together to succeed, which is comparative to the environment in which businesses function.
 
Moreover, Federation Internationale de l'Automobile (FIA), the independent governing body of F1 racing, imposes changes to racing teams' environments by releasing a new set of rules each year, which is similar to changes in the regulatory and business environment that businesses face on a regular basis.
 
Analysing the degree of freedom FIA gave the teams to incorporate technological innovations, the researchers found that "incremental improvements were often better than big changes".
 
The reason: Formula One cars -- like many businesses -- are complex, interconnected systems.
 
"There is a risk when you make some kinds of changes that you won't be able to make the whole system work together again," Anand said.
 
The best path, according to the researcher, is usually to make changes on the margins, where you can gain some efficiency without disturbing all the other parts of the system.
 
However, Anand cautioned that the study results do not mean innovation, even radical ones, are not sometimes needed in business.
 
"But we are pushing back at the conventional wisdom that innovation is always good, and is always the right choice for business. Sometimes there is value in going slow," he said.
 
The study appeared in the current issue of the journal Organisation Science.

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COMMENTS

vswami

1 year ago

To attempt and dilate:
According to a renowned legal legend, in no less a competent expert than the retired CJ, Kapadia, the objective of having besides, tests, etc., the so called/devised ‘standards’, for inter alia administration of the legal regime- of which one specific area made a mention of, is ‘valuation methods’. The intent is to ‘restrict the discretion’ of any authority in exercise of his vested powers in his related realm of affairs. Might be so, provided any ‘ standard ‘ prescribed and expected to be adopted / followed by one and all concerned is quite so simple and straightforward; clear-cut, with no or the least ambiguity, as to be amenable to doing so, with no impediment, such as any need for an interpretation, but with ease. Now, consider , for sampling, any of those ‘Standards’ in place; for instance, in the rules book of ISI, concerning marketed ‘goods’ ; or those concerning ‘service’ – e.g. a profession - say, law, or accounting and audit, or any other like supposed-to-be-sophisticated field of activity. Also consider, and form independent but impartial common-sense-based opinion as to whether anyone or more of the applicable standards – as prescribed by the legal or regulatory authorities and in place, for decades now, are so foolproof and safe proof, as to leave no or the least scope for any sort of the most dreaded factor of ‘discretion’ coming into or a role to play.
*Recommend to carefully view / mindfully listen to, what he has to say, - Justice Kapadia: Jurisdiction First, Doctrines Later
Left open to Edit; and invited to ponder and add value!

vswami

1 year ago

IMPROMPTU (commoner’s reaction)
As broadly viewed, innovative ideas, purely from a theoretical point of view, are needed or a must for business, (equally so, for profession); more so, in today’s constantly changing scenario hence requiring to be given due importance. In deciding to be given a final shape and being implemented , however, if were to be closely viewed from the angle of consumers/customers, the primary objective must be to further improve the quality of goods or service ; certainly not to impair or sacrifice it, even if regarded to be justified , wrongly so, on the ground of ‘cost cutting’ or balance of convenience. This is one essential aspect, which, going by common experience, does not appear to have been given much thought, instead remain merrily over sighted, even by the empowered authorities in governance of the so called ‘standards’.
No wonder, the avenues open for fighting for remedies,let alone long lasting protection, - that is, consumer and other courts, are increasingly overburdened; and groaning under the enormity /volume of litigation.
In a nut shell, the ‘standards’ prescribed, modified from time to time though, have miserably failed to cope up with and match or meet anywhere the ever changing actual needs of the hour.

The biggest threat to 'acche din': Raghuram Rajan
The truth is that these bold calls are 'black swan' events themselves! Very rarely do other predictions from these notable market commentators come true
 
We all love bold economic forecasts, especially contrarian ones. And every once in a while, they turn out to be correct. Economists who correctly called great market booms and busts, global recessions, identified green shoots before sharp cyclical recoveries and predicted black swan events correctly are given legendary status. Of course, to some extent, they deserve it.
 
But the truth is that these bold calls are 'black swan' events themselves! Very rarely do other predictions from these notable market commentators come true. 
 
Marc Faber is famous for calling the market crash of 1987. But every year since 2008, he has been predicting a bear market in US equities. Nobel laureate Robert Shiller is famous for calling the US housing bubble and the following crash of 2007-08. He too has been bearish on US stocks for the last three years. Market guru Jim Rogers who correctly called the commodity bull run from the late 1990s has been predicting a bull market in agri-commodities and the demise of the US dollar since the past many years. Peter Schiff, who predicted the financial crisis has been predicting gold to hit $3,000/oz since a long time. All these calls have been wrong.
 
Raghuram Rajan is famous for correctly pointing out the prevailing risks in the global financial system back in the mid 2000s and warned leading policymakers at a Jackson Hole conference about a potential financial armageddon. He has been famous since then. 
 
I have the greatest of respect for Mr. Rajan. Nobody questions his prowess. He is as qualified as any globally renowned economist to be leading our central bank. But the fact that he correctly predicted the great financial crisis leads many to believe that he can see potential danger signals to the economy which apparently others cannot. Not only has he misread our domestic inflation prospects, his perception of the on the ground reality is also absurd. India desperately needs to see a large and a sharp fall in cost of capital. The transmission effect with the petty rate cuts so far has not worked as there is hardly any confidence within our financial sector of a sustained cyclical recovery in the investment cycle. Telling real estate developers that property prices must fall is not something he should be concerned about at this moment. He should rather aggressively cut interest rates so that home loans become cheaper and the housing market will find its equilibrium as they do in any free market. Similarly, it is not his job to be commenting on how there should be globally coordinated exit strategy from quantitative easing. Monetary divergence is the global macro theme right now. 
 
Rajan has got many themes and trends absolutely wrong.
 
Firstly, Rajan has failed to understand the trend in global commodities, especially oil. Crude oil had rebounded about $10 from its March low of $45/barrel in May/June when he said that a rebound in energy prices is a key risk to growth and inflation. Rajan should note that the dynamics of the energy market have changed. Every pullback will only be temporary and will be sold into. As CLSA noted in a research note last week, "a break below $40 in the oil price is just a matter of time even if there is undoubtedly scope for a short-term bounce. This is because shale production is becoming ever more efficient which is why the marginal cost of production keeps falling, which is also why it cannot be assumed that Saudi Arabia will ultimately win the battle for market share. Saudi Arabia allowed America’s oil fracking boom to go on too long before reacting to seek to preserve its market share." Even if oil prices do not fall further, India is in a sweet spot. But where are we seeing the benefits of a commodity bear market in India? Nowhere yet.
 
Secondly, being a lonely hawk within a global deflationary environment himself, my guess is that he expected the US Fed to increase interest rates much earlier. He wanted to keep ammunition in his bag in terms of domestic rate cuts in case global markets witnessed turmoil. But clearly, that all has been wrong. The RBI's counterparts at the Fed are smart enough to realise that a strong labour market recovery is not sufficient for monetary tightening and are waiting to see an uptick in wage pressures and overall inflation. If only Rajan had been paying close attention to the movement of US 10 year bond yields, he would have easily concluded that the Fed was never intending to move as fast as he was expecting. 
 
Thirdly, while Rajan and his peers at the RBI had the right strategy of recouping FX reserves by buying back dollars at around 60-62, we aren't seeing much benefits of that either. The idea was that on a rainy day, the RBI would actively intervene and defend the rupee. But we have had the USD-INR close above 65 for the last few sessions after the spillover effects of the yuan devaluation. So, unless the RBI is now aiming for a substantially weaker exchange rate, Rajan does not score too highly on the FX policy report card either. I am all for gradual depreciation of INR over the years. But the fact that the rupee is getting hammered in an macro environment which should really be conducive to a commodity importing nation is a sign of how global investor perception is quickly changing. If India is to be perceived as a sound economic story with strong fundamentals, the INR would have to behave like a safe haven currency like the Swiss franc, Japanese yen and the US dollar in times of turmoil.
 
Forget Greece and Europe. Forget China. Forget monetary tightening in the US. The biggest risk to the India story today is a hawkish Rajan. We urgently need a 50 basis points rate cut.

User

COMMENTS

SACHIN PANGARKAR

1 year ago

If low interest rates meant higher consumption and consequently higher investments the american and the european economies should have been booming.

how much does reduction in interest rate have an impact on the cost. So if it were a factor wouldnt companies be passing on benefits due to reduction in commodity prices to consumers and reaping the benefits of higher volumes. The question to be asked are companies not confident enough that the fall in prices of end commodity will give the desired result otherwise wouldnt they be doing the same.

webkitendfullscreen

1 year ago

Take the case of onion prices, what has Rajan got to do with it,
This rise in onion prices is yearly ritual with massive rise in sept-oct. wit middleman making huge cut,
When government cannot be proactive In planning early imports to check prices, who is to blame, similarly toor dal is around 140 same as a cost of 1 Kg chicken,
So interest rates are not , but addressing supply side issues is,
Air we going the Chinese way in property crash, wise to follow Dr Rajan here.

REPLY

Yogendra Sontakke

In Reply to webkitendfullscreen 1 year ago

Very well said. Property prices are high due to government inability to tackle black money. With rental yeild at less than 2%, there is a crash on our hands.

webkitendfullscreen

1 year ago

Well it was Y V reddy who had right policies during 2008 crisis, similarly governor Radian been making right moves, he will Indians Saviour like Gavernor Y V a Reddy,
Rate cut is just one lever, there are many levers rusting at govememts end, no one speaks about it,
Easy to bash RBI governor,
Bigger risk is policies of Finance minister ,and MOS yesterday was addressing Monday's market crash by donning his Investment banker hat.
Sad but true
Pravin

Danny Allen

1 year ago

Well said. Food prices won't go up with a interest rate cut. His logic seems to be bizarre and weird.

Govardhan Parthasarathy

1 year ago

Vatsal Srivastava, your comment "He wanted to keep ammunition in his bag in terms of domestic rate cuts in case global markets witnessed turmoil. But clearly, that all has been wrong."

Now we know who is wrong.

PRABAL BISWAS

1 year ago

I can see the future Governor in making.

Ralph Rau

1 year ago

Indian banks have a serious issue with NPAs. In a sluggish environment there is a need to repair balance sheets with improved margins so banks cannot cut their rates to match those of the RBI.

Rajan's remit is clear. Decisively bring and hold inflation between 4-6%. The RBI consumer survey has demonstrated that inflation expectations have not abated.

The risk of a poor harvest and its impact on food inflation simply cannot be wished away.

REPLY

Manoj

In Reply to Ralph Rau 1 year ago

RBI does not control inflation. Hope you havent forgotton that Rajan has been on record that higher interest rate was only needed till inflation was in double digits. Well now, it's half of that & he's now offering expected inflation rise as an excuse. It makes no sense because monetary policies can only react to inflation, not control inflation

MG Warrier

In Reply to Ralph Rau 1 year ago

Let there be clarity on one aspect. The impact of changes in RBI's base rates on ground level lending rates is very limited and 'percolation down the line' is very slow. Any 'cut' will quickly get factored in, in deposit rates and this gives banks some comfort.The clamour for rate cut comes from certain quarters having some interests beyond interest rates. Government throws its weight with those asking for rate cut by RBI, primarily to divert attention from its own weak fiscal management.

Ralph Rau

1 year ago

Make in India will only work if India's cheap labour arbitrage is protected so we can compete with Chinese and East Asian exporters. There is no basis for pretending the Rupee can match the Dollar.

The Real Estate speculating tycoons must be brought to their knees at some point - the earlier the better to end the absurd property price bubble and avoid a spectacular collapse later with collateral damage to the financial sector.

Median Property price must never be allowed to exceed 8x - 10x the Median Income.

REPLY

Manoj

In Reply to Ralph Rau 1 year ago

True. And that can only happen if banks do not have 2 concurrent loans running against the same asset - one to the builder, and another to the end buyer. While it increases banks profitability, it also drives asset inflation. Like all other asset backed loans, the first must be extinguished before the transfer of asset happens.

This kind of practices, taken to the next level, was what caused the toxic CDO crisis finally.

Meenal Mamdani

1 year ago

I am not an economist, just an interested reader.

The comments so far have been enlightening. In my humble view, what will give a boost to Indian economy is better infrastructure, less crony capitalism thus less NPA of banks, swift justice so investors can be assured of redress in case of financial shenanigans, increased demand in rural areas by improving the rural economy, etc.

If rate cuts alone could boost an economy, then why has the US economy shown such poor growth despite almost 0% rates.

REPLY

Manoj

In Reply to Meenal Mamdani 1 year ago

Good comment. And you've hit the nail on the head. Interest rates are only cost of money, keeping them high lets banks get a bigger share of earnings being generated in the real economy. When too high, there is no incentive for growth or new startups in the real economy, so it starts stagnating. If the potential for earnings in the real economy is itself low, no matter how low the interest rates, real economy wont grow.

That is why interest rates can only slow or accelerate the real economy, but they cannot drive the real economy up, though kept too high they can prevent it from growing.

SAMUEL WARBAH

1 year ago

Friends can have differences in opinion.Nothing wrong in that.

Dr Anantha K Ramdas

1 year ago

Vatsal Srivastava concludes his article by saying :"we urgently need a 50 basis point rate cut".

So "hawkish" Rajan complies with your suggestion. Unless the effect of this cut is passed on to the ultimate consumer who needs the funds, and that too for "productive" use, we land up nowhere.

A brief study of banking operations would indicate that the Banks are extending credit facilities, a good percentage of them are NPAs, the purpose of rate cuts will also be lost.

Our serious attempts should be to increase exports, reduce the rubbish imported from China and others and increase the savings. There is urgent need to exercise control on imports and "freedom" to invest abroad when there are hundreds of ways to increase productivity in the country itself.

We may as well expect at least two more "adjustments" of Yuan before the year is out. We need to strengthen our own Rupee by greater exports and lower imports.

Chandragupta Acharya

1 year ago

It is a myth that Rajan is preventing rates from falling. It is also a myth that economic recovery is being held back due to high interest rates. Author seems to have formed his opinions without looking at data. Looks like a cheap motivated attack on Rajan.

REPLY

MG Warrier

In Reply to Chandragupta Acharya 1 year ago

Thank you Acharya for crisply giving the reasons why moneylife readers restrained from commenting on personal comments against Dr Rajan.Still, such occasional diversions give opportunity for keeping abreast of the 'thinking' of people who 'matter'!

MG Warrier

1 year ago

First, let me restrict my comments to the rate-cut issue and monetary policy. Based on the August 2015 Monetary policy statement, I have made the following observation:
According to RBI assessment, liquidity conditions have been very easy in June and July. A seasonal reduction in demand for currency and increased spending by Government coupled with structural factors such as low credit deployment relative to the volume of deposit mobilisation contributed to surplus conditions in the money markets. This resulted in a significantly lower average daily net liquidity injection under the fixed rate repos under LAF, and variable rate term repo/reverse repo and MSF at 477 billion in June, down from 1031 billion in May. In July there was net absorption of 120 billion through these facilities. In response to the reduction in the policy repo rate in June the weighted average call rate eased from 7.47 per cent in May to 7.11 per cent in June.
.
Those who are making a plea for more ‘cuts’ may try and understand the following observation in the policy statement:

“Since the first rate cut in January, the median base lending rates of banks has fallen by around 30 basis points, a fraction of the 75 basis points in rate cut so far. As loan demand picks up in Q3 of 2015-16, banks will see more gains from cutting rates.”
RBI has a much larger role than that of a Rate-cutter as is being made out by some analysts.

narendra

1 year ago

Well, dont know about Rajan but I know this much is that you have an agenda against him and I know why.

Well, for others let them see you are more wrong than Rajan and in fact ALL THE TIME WRONG as far as analysis is concerned.

below are links to prove.
http://www.businesstoday.in/current/worl...

http://www.sify.com/mobile/news/great-bu...

REPLY

MG Warrier

In Reply to narendra 1 year ago

Thanks Narendra. Opened and read the articles following the links.Irrespective of the rights and wrongs, such comments give one the comfort that readers of Moneylife cannot be taken for a ride by talking "high high".

narendra

1 year ago

Well, dont know about Rajan but I know this much is that you have an agenda against him and I know why.

Well, for others let them see you are more wrong than Rajan and in fact ALL THE TIME WRONG as far as analysis is concerned.

below are links to prove.
http://www.businesstoday.in/current/worl...

http://www.sify.com/mobile/news/great-bu...

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