The Reserve Bank of India has said that banks should consider the possibility of allowing them to pre-pay floating rate term loans without any penalty
The Reserve Bank of India, in its first bi-monthly policy had said that banks should allow customers to prepay floating rate term loans without any penalty. Similarly, the central bank has asked bank not to levy penalty charges on non-maintenance of minimum balance in savings account.
"In the interest of their consumers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty. Banks should also not take undue advantage of customer difficulty or inattention," RBI said in the policy statement.
According Dr Raghuram Rajan, governor of RBI, the central bank is envisaging a number of measures to protect consumers. “For example, banks should not levy penal charges for non-maintenance of minimum balance in ordinary savings bank account and inoperative accounts, but instead curtail the services accorded those accounts until the balance is restored," he said.
Instead of levying penal charges for non-maintenance of minimum balance in ordinary savings bank accounts, banks should limit the services available on such accounts to those available to basic savings bank deposit accounts and restore the services when the balances improve to the minimum required level, RBI said.
Further, banks should limit the liability of customers in electronic banking transactions in case where they are not able to prove customer negligence.
Foreign assets in India increased by $39.9 billion due to higher deposits, direct investments, equity and other investments
During the December quarter, foreign owned assets in India increased by $39.9 billion to $776.1 billion over the previous quarter while Indian residents’ financial assets abroad, increased by $22.2billion at $458.9 over the previous quarter, reveals the Reserve Bank of India (RBI) in its report on International Investment Position (IIP).
Net claims of non-residents on India
During the December 2013 quarter, net claims of non-residents on India (net IIP) increased by $17.7 billion to $317.2 billion compared with previous quarter. This change in the net position reflected an increase of $39.9 billion in the value of foreign-owned assets in India vis-à-vis an increase of $22.2 billion in the value of Indian Residents’ financial assets abroad.
Indian residents’ financial assets abroad
Indian residents’ financial assets abroad increased by $22.2 billion to $458.9 billion mainly due to a $16.7 billion increase in reserve assets and $5.8 billion rise in other investment abroad; trade credit and currency and deposits. Direct investment abroad observed marginal decline of $0.3 billion, the RBI said.
Foreign-owned assets in India
Foreign-owned assets in India increased by $39.9 billion to $776.1 billion, compared with previous quarter, due to a $23.6 billion increased in currency and deposits component of ‘other investment’.
Direct investment in India increased by $8.6 billion and portfolio investment in India increased by $5.6 billion during the December quarter. While equity investment increased by $8.0 billion, debt investment decreased by $2.4 billion. Among other investment liabilities, trade credits declined by $1.2 billion and loans increased by $3.2 billion.
Effects of Rupee Appreciation
Variation in exchange rate of rupee vis-à-vis other currencies affected change in liabilities. Equity liabilities increased by $16.3 billion, due to the stock valuation effect resulting from rupee appreciation, while net inflow was $11.5 billion during the period.
Composition of External Financial Assets and Liabilities
Reserve assets continued to have the dominant share (64.0%) in India’s international financial assets in December 2013, followed by direct investment abroad (26.1%). Direct Investment (29.2%), portfolio investment (22.8%), loans mainly ECBs (22.1%), trade credit (11.4%) and currency and deposits (12.7%) were the major constituents of the country’s financial liabilities, the RBI said.
External Debt Liabilities vis-à-vis External Non-Debt Liabilities
The share of non-debt liabilities decreased marginally to 44.8% as at end-December 2013 from 45.1 percent at end- September 2013. (Refer: Table 3)
RBI issues IIP every quarter, which helps in understanding sustainability and vulnerability of the economy’s external sector. IIP shows the value and the composition of financial assets and liabilities of residents of an economy to non-residents.
We suddenly have a premature exit of a great deputy governor who favoured competition among banks, was against banks selling third-party products and was pro-consumer
On 25th April, one of the most forthright and honest deputy governors (DG) of the RBI will retire—three months before his term ends. It is befitting that Dr KC Chakrabarty, who got the post and an extension without the customary lobbying, has chosen to quit before his term ends.
Unlike many colleagues and predecessors, he is not hanging on in the hope of another extension or a post-retirement sinecure. Dr Chakrabarty’s forthrightness has always disconcerted the denizens of Mint Street; but what made them really squirm is that he is usually right.
In August 2010, the then governor, Dr D Subbarao stripped Dr Chakrabarty of key portfolios following a deliberate set up. A vitriolic media report was used to drum up frenzy over his alleged comment that interest rates ought to have been hiked more aggressively to control inflation, claiming that it had rocked the bond market. Nobody has ever apologised to Dr Chakrabarty for the humiliation, although he has been proven spectacularly correct.
After holding off interest rates then, RBI was forced to hike interest rates so aggressively, that it caused a huge rift between the finance ministry and RBI governor Dr Subbarao, who had come to RBI as a blue-eyed boy of the government.
Although most of his portfolios were restored in a subsequent reshuffle, RBI has remained a faction-ridden and non-transparent organisation, which hampers its ability to frame policy transparently and quickly. Consequently, many decisions that would benefit ordinary people and depositors take forever.
Dr Chakrabarty often said that it took him several years to have some obvious pro-customer decisions implemented. One of these was to bar the pre-payment penalty that banks impose on home loan borrowers, to prevent them from switching to other borrowers. Since banks discriminated against existing borrowers by offering lower interest to new customers, the scrapping of foreclosure charges levelled the playing field for customers. He also stopped banks lending below their base rate and, more recently, from fooling customers with fake zero-interest loan offers during festivals.
Dr Chakrabarty has also been most vocal about mis-selling of third-party financial products by banks but was unable to stop it during his tenure. However, to Dr Chakrabarty goes the credit for ensuring one of the biggest ever payments by a foreign bank to actor-singer Suchitra Krishnamoorthi in a case of mis-selling. Despite resistance at various levels in the central bank, inaction by the insurance regulator and part-action by the capital market regulator, it is to his credit that Hong Kong & Shanghai Banking Corporation (HSBC) was forced to make a settlement.