Money & Banking
Core banking: RBI’s half-baked directions to banks

RBI has just come out with guidelines for issuance of “Payable at par/Multi-city” cheques to all eligible customers in a standard format. But the RBI should have thought of many other possibilities of offering a wide variety of services using CBS. Here is a list of benefits it could have allowed


Almost all the banks in our country have introduced “core banking solutions” (CBS), under which, all the branches of each bank are centrally inter-connected. This provides the flexibility of operating a bank account opened in one branch of a bank in any of the other branch of the same bank. But the full benefits of CBS are yet to percolate down to the banking public, as banks, barring a few, are generally slow in passing on the benefits to the banking public unless goaded by the banking regulator. As a first step in this direction, RBI has just come out with guidelines for issuance of “Payable at par/Multi-city” cheques to all eligible customers in a standard format, so that they are honoured, if otherwise in order, when presented at all different centres though the clearing houses as if they are local cheques. Since such cheques (payable at par) are cleared as local cheques in clearing houses, RBI has directed that customers should not be levied any extra charges for this service.
 

This is no doubt a good beginning, but the RBI should have thought of many other possibilities of offering a wide variety of services using CBS and issued a comprehensive circular covering all aspects at one stretch which would have served the cause of bank customers admirably. Here is a list of important and very useful services, which could be made available to the public through the use of CBS at little or no additional cost to the banks.
 

Payable at par/Multi-city cheques

The RBI has just directed banks to offer issuance of payable at par/multi-city cheques without any charges. But there is a catch here. As per the RBI circular issued on 10 August 2012, this facility is to be offered to “all eligible customers”, instead of saying all customers enjoying cheque facility. RBI has not clarified as to who is an eligible customer, leaving it to the discretion of individual banks. With this loophole, the banks may be tempted to offer this service only to high net worth customers stipulating a much higher minimum balance in the account to be eligible for this facility, thereby defeating the very purpose of this service. Besides, this will give rise to two class of cheques, i.e. cheques which are payable at par at all the branches of a bank, and cheques which are payable only in a single city, where drawee bank’s branch is located. In order to serve the purpose of bringing about further efficiency in cheque clearing as stated by the RBI in its circular, and to extend this facility to all those enjoying cheque facility, RBI should issue a further clarification directing banks to make this facility available to all the customers who have been offered cheque facility by the banks. This may be an unintentional omission, which needs to be corrected.
 

Withdrawing cash from branches other than the home branch

 

The aforesaid circular of RBI covers only payment of cheques through the clearing house and does not include cash payments. Recently a customer of a nationalized bank having an account in Borivili, Mumbai branch of a bank wanted to urgently handover cash to the tune of Rs50,000 to his relation living in Matunga. Even though this bank is under CBS, he was informed that the facility of drawing cash from another branch of the same bank was not available to him. Hence he was compelled to withdraw cash at Borivili and travel all the way to Matunga with the attendant risk involved in carrying cash, which could have been avoided, if only the facility of payable at par at any branch of the bank was available even for cash transactions. This facility is useful when you travel to other cities also, as withdrawal from ATMs is permitted with lot of restrictions attached to it. A few banks do allow withdrawal of cash from another branch of the same bank in a limited way, but there is neither uniformity nor clarity in this regard. As the circular issued by the RBI last week is silent in this matter, it is desirable that suitable guidelines may be issued in the interest of customer safety and convenience.

 

Depositing cash/cheques in branches other than the home branch
 

A customer of a bank in Delhi wanted to make a remittance to his son studying in Mumbai. He has many options to send this remittance, one of which is to simply credit the amount to his son’s account with the bank in Delhi, whose Mumbai branch is having his son’s account.  So he went to the nearest branch of that bank in Delhi and asked the counter clerk whether he could deposit cash for credit of his son’s account in Mumbai in the same bank, as both the branches were under CBS. He was informed that he could do so only if he was also the account holder of that bank in Delhi. Otherwise the beneficiary of the remittance would have to pay a hefty charge for receiving such a remittance. As he did not have an account with that bank in Delhi, he was asked to remit the amount through National Electronic Funds Transfer mode (NEFT), which was a cheaper mode of remittance, but the amount would be available to his son only on the next working day. If only the bank had extended the CBS benefit to the father of the account holder of the bank in another city, life would have been much simpler and the customer would have received the remittance quickly and without any hassle and cost. This is a classic case of simple things made complicated for want of understanding the customer’s needs.

 

Updating the passbook in a branch other than the home branch
 

A pensioner, receiving his pension though his account with a public sector bank in Mumbai went on a long holiday to stay with his daughter in Chennai. He was very happy to see a branch of his bank nearby and went to the branch in the first week of the month to get his pass book written up just to make sure that his pension for the previous month has been duly credited to his account. He no doubt got his pass book written up, but was surprised to find a charge of Rs10 debited to his account for extending this service. He was informed that this charge was as per the rules of the bank, though, no such charge was levied for extending the same service in his home branch. The amount of charge may be small for the bank, but not for a pensioner. Is this not a case of taking advantage of customer’s predicament?
 

There are a number of other services like renewing or encashing a fixed deposit, payment of loan instalments, even closing an account, etc which are possible under CBS in any branch of the bank, without incurring any additional cost to the bank. By extending all these services in any branch of the bank without any extra charge, banks can win over the customers and continue to enjoy their patronage, which will help them to expand their current and saving deposits, a source of low cost deposits for the banks. These may appear small pinpricks, but they certainly go a long way in making life simpler for a large number of our people who do not have access or knowledge of internet and computers. But unfortunately, many public sector banks in our country are either slow in providing innovative services to the customers or do not bother to find out the customer’s needs. They only act on getting a direction from the RBI, which alone with a little foresight can make the life of bank customers a little more comfortable and convenient in these trying times.
 

 (The author is a banking analyst. He writes for Money Life under the pen-name ‘Gurpur’.)

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COMMENTS

JIGNESH MANANI

3 years ago

As per Core Banking Solution (CBS), Customers are enables to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account.

My account is at BOB – Amreli and presently I am living in surat so that I had deposited 1 cheque of transfer (BOB to BOB) in Bank of Baroda – Nanpura (Surat) branch.

It is informed to me that transfer cheques can be deposited either at issuer’s branch or in receiver’s branch. And bank staff denied to accept this cheque so that I had meet bank manager for this but he also answering same. I ask for reason why it is not accepted then he tells that this is as per bank’s rules. I ask to manager to give this statement in writing that transfer cheques can not be accepted for this reason and also ask to see me rules of bank for this but he denied to give and tells that “do whatever you can do, i will not accept this cheque”.

There is no meaning of CBS in this type of banking facilities.

Due to this type of wrong banking many customers are suffering a lot. This is done with me so many times so i had explore this issue at RBI level also.

I think this is due to there is no benefit to that branch for accepting transfer cheques of other branches.

JIGNESH MANANI

3 years ago

As per Core Banking Solution (CBS), Customers are enables to operate their accounts, and avail banking services from any branch of the Bank on CBS network, regardless of where he maintains his account.

My account is at BOB – Amreli and presently I am living in surat so that I had deposited 1 cheque of transfer (BOB to BOB) in Bank of Baroda – Nanpura (Surat) branch.

It is informed to me that transfer cheques can be deposited either at issuer’s branch or in receiver’s branch. And bank staff denied to accept this cheque so that I had meet bank manager for this but he also answering same. I ask for reason why it is not accepted then he tells that this is as per bank’s rules. I ask to manager to give this statement in writing that transfer cheques can not be accepted for this reason and also ask to see me rules of bank for this but he denied to give and tells that “do whatever you can do, i will not accept this cheque”.

There is no meaning of CBS in this type of banking facilities.

Due to this type of wrong banking many customers are suffering a lot. This is done with me so many times so i had explore this issue to the RBI level also.

I think this is due to there is no benefit to that branch for accepting transfer cheques of other branches.

MK Gupta

5 years ago

With ref to the opening statement that, “Almost all the banks in our country have introduced “core banking solutions” (CBS), under which, all the branches of each bank are centrally inter-connected”, it must be categorically noted that, as far as the SBI is concerned, this service is payable only at a price AND IS NOT FREE.

nagesh kini

5 years ago

The RBI certainly comes with some directions in spurts and jerks that are not just half baked but more half hearted.
The suggestions made by Gurpur are absolutely valid, coming ads they do from a veteran banker with international and equally vast domestic exposures.
There is no logic in levying any charges either for updating pass book at another branch of the same bank or withdrawing cash from another bank ATM.
All banks face long Qs for collecting cash and cheques for utility bill payments. None of them or the utilities seem to be keen on motivating them to opt for ECS. The banks can cut down on paper, entries postings, issuing of receipts and no persons in a crowded branch. The utilities in turn will benefit by instant collections that go to reduce their receivables in a jiffy!
Banks also complain that NEFT is a tedious exercise for them.
If only RBI could be more sensitive to the ground realities!

Foreign investors lose faith in public sector units—again!

Poor returns, a weak government with no appetite for reforms have scared off many investors, including foreign investors from the stocks of PSUs. In the mid-90s, many savvy investors had met with the same fate and swore not to invest in government company stocks. This only shows how and why even institutional investors repeat the same mistakes again and again


On Thursday 9 August 2012, Jeff Chowdhry of F&C Asset Management, was quoted in by Bloomberg as saying that “We are reducing exposure to state-run companies... Most portfolio investors are saying: I am only going to invest in companies that are private sector, and as far removed as possible from government policy”. Rewind back to 1996, an outspoken fund manager Samir Arora, had made a nearly identical comment and had remarked that he would like to invest in companies that have little to do with the government. He had burnt his hands investing in Hindustan Petroleum Corporation (HPCL). What has changed within a spate of 16 years? What has definitely not changed is the fact that investors, especially institutional investors make the same mistakes repeatedly despite obvious facts staring at their faces.

 

Foreign investors have been selling stakes in state-owned corporations and have decided to focus on the private sector instead, as they have run out of patience with the Indian government. The fact that PSUs would be bad investments is obvious to anyone who has some idea of how these companies are run. We all know that public sector units (PSUs) have no autonomy and are effectively run by the ministers through the secretaries. It has been so for decades and there is simply no incentive anywhere to change this. Unfortunately, sophisticated investors seem to make the same mistakes over and over again.

 

Consider the returns that all the PSUs have made in the last one and two years. The Sensex has given returns of 3.59% and -3% respectively. Over the last two years, only 12 out of 60 public sector units were able to outperform Sensex. The statistic worsened when only three companies out of 60 outperformed the Sensex. Such abysmal figures are not surprising given the history and attitude of the government towards economic reforms, particularly PSUs.

 

In fact, speaking of public sector units, way back in 2000, G Ganesh, former member-secretary, Disinvestment Commission, admitted that the Indian public sector has been made sick “due to the absence of a competition policy with statutory regulators, lack of corporate governance and entrepreneurship and a huge unproductive labour force.” Nobody paid attention and turned a blind eye towards this honest observation. Here is what he remarked then, and it still applies today:

 

“We need to restructure Public Sector Undertakings on a war footing as most public sector units, barring a few which are monopolies, are bound to report to BIFR within the next two or three years, unless radical steps are taken for reforming them. Restructuring methods should, therefore, encompass the fields of business organization and finance. Today, most restructuring, which is being attempted pertains merely to finance and hence becomes unsuccessful. Corporate governance of public enterprises is the need of the hour. This includes proper autonomy that is permitting public enterprises to function as commercial entities, free from the clutches of the Government to take all investment and pricing decisions, no interference from their owners. This will also entail selection of the right CEO through a transparent, impartial process. This will in turn ensure the accountability of the CEO and the board members.”

 

Public sector units do not operate like their private sector counterparts, the latter which creates value vis-a-vis minimal use of capital, lean operations, innovation, empowered managers, high quality of recruitment and training programmes. Very few, if at all, government-controlled company have any of these essential qualities. Capital waste, the key value-destroying factor, is a common feature. Instead, public sector companies have been seen as a solution to short-term ills, from helping the government cut budget deficits, to rekindling foreign investors’ love affair with Indian stocks (give it to them cheap, increase FDI limits, etc), to bringing back retail investors (sell it below market price) and to push up the stock market.

 

Even using tax payers’ money to bailout a flailing airline that continues to make losses is one of the government priorities. There is no clear policy on how such companies ought to be run and managed. Unless reforms take place, public sector will continue to bleed tax payers’ money. Yet institutional investors forget all this and react with optimism when the government talks of reforms.

 

Consider recent IPOs of PSU undertakings. How have their performances been? Five of the last 10 IPOs have fared worse than Sensex on an annualised basis. Only two have given decent returns. Coal India, one of the most promising public sector units, in terms of resources and scale, has barely given positive returns.

 

Company

IPO Price

Listing Price

CMP (8th August 2012)

Annualised Returns

Sensex Annualised Returns

Rural Electrification

105

121.2

208.85

13%

2%

Power Finance Corp

85

111.55

185.4

10%

5%

Power Grid Corp

52

100.65

118.85

3%

0%

Coal India

245

342.35

345.45

1%

-9%

Oil India

420

456.22

482.2

2%

1%

NTPC

62

75.55

168.1

11%

15%

NHPC

36

36.7

18.2

-21%

4%

SJVN

26

25.05

20

-10%

3%

MOIL

375

466.5

266.35

-29%

-6%

Punjab & Sind Bk

120

127.05

63.1

-35%

-9%

 

Institutional investors though, as usual, had got carried away with the notion that PSUs are great opportunities. With limited growth prospects, increased competition and managed by remote control, long-term value creation by privatised public sector units will still be elusive. Don’t hope too much as elections draw closer, the chances of government taking bold and uncomfortable decisions looks unlikely. But be certain that 10-15 years later another institutional investor will again think that PSUs are great bets.

User

The truth about Mercedes Benz India-1: Sneakily replacing dangerously defective parts!

Cama Motors, a highly reputed and one of the oldest dealers of foreign cars, has made allegations of murderous malpractices of Mercedes Benz. It charges Mercedes of being neck-deep in a variety of immoral and unethical practices

 
Would you believe it if you received a letter from Mercedes Benz informing you that you had won a lucky draw and your gift was a “FREE INSPECTION!!” But they actually want to replace your turbocharger without informing you? Or would you believe that Mercedes Benz engineers discovered that the clutch assemblies of their cars across the board were remaining stuck to the floor when warmed up. But instead of immediately pulling every single car off the road, they took eight years to first secretly fit a heat shield (hiding the purpose from dealers) and then developed an insulated bodied clutch which was selectively fitted to the “problem cars” thereby putting countless lives at risk for years?
 
These and many more shocking incidents have been exposed by none other than an extremely reputed ex-dealer of Mercedes Benz. The dealer in question, Cama Motors, is in this business for over 120 years. Back in 1931, Late Khan Bahadur Rustom Cama brought dealership of Ford Motors to Ahmedabad and even today it is regarded as a memorable landmark not just for local people but also for Ford. Remember, the first car in India came through a Mumbai-based Englishman only in 1897. 
 
Having discovered to his horror the above sneaky, surreptitious malpractices, Rustom Cama, executive director, Cama Motors, has filed a number of complaints against Mercedes Benz India with every concerned authority, including top management of Daimler AG, German Embassy in India, Competition Commission of India (CCI), and the ministry of surface transport. However, he got no response from anywhere. 
 
Frustrated, he has created a website to describe decline in quality of Mercedes Benz cars over the years. The welcome line says, “Cama Motors deeply regrets its association with Mercedes Benz”.
 
The website says, “...service measures were carried out as part of a continuous campaign which we (dealers) were told was in keeping with the tradition of ‘continuous improvement’ according to Mercedes Benz India.”
 
“We never understood or expected that some of these campaigns, which amounted to removing parts and software and replacing it, were connected to life-threatening defects. We ourselves were so embarrassed by the pathetic quality that we blindly carried out these measures which you will undoubtedly be disgusted by when you see the details.”
 
“It was only after many years that we could no longer remain in denial and we began to piece the details together, painting a picture of a company murderously involved in malpractice of the most serious kind. We are sure that it will shake the world of consumer rights when people are made aware of the deceitful way in which this company has tried to cling to its past glory, while being neck-deep in immoral and unethical practices,” it says.
 
Speaking about his experience with the dealership of Mercedes Benz, Mr Cama said, “After trapping many reputed dealers like us, over the years the company modified its relationship with dealers. It also included several new clauses and non-disclosures pacts in the agreements. When dealers like Cama Motors became a liability for the company, one by one we (dealers) were harassed and some were even destroyed. Over past few years, 13 dealerships have been closed, mostly with severe abuse of power from Mercedes.”
 
According to Mr Cama, his latest effort on the web is to develop a resource for customers of the many mysterious defects, which it was kept in the dark about. His website also gives information to customers who bought their Mercs from Cama Motors to check if they were cheated by the company using the dealer or not.
 
Moneylife sent mails to Mercedes Benz India asking them about the allegations made by Cama Motors. The response from the company would be added as and when we receive it.
 

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COMMENTS

Parimal Raj

4 years ago

My experience with Merc ownership has been altogether different than what has been mentioned here. But rather than explaining those things, I would like to know why was the dealer silent for so long ? Why he came out with this when he was fired from dealership ?
As far as clutch plate is concerned, I think this must be age old story as new one comes with auto transmission, so no manual interference. Mine has 7speed 7G tronic auto trans & it is one of the best I have used, far better than my BMW.

Now please see the following links -

BMW to pay $3M fine for US recall issues -

http://business.inquirer.net/44115/bmw-t...

BMW North America agrees to $3m safety fine -

http://gulfnews.com/business/automotives...

But still I trust my Beemer (BMW). Similarly, for me Mercedes remains my first love [hope my girl friend is not reading this ;) ] and no matter what is being said, my experience is fantastic and hence least bothered about it.
BTW, I feel 99% of comments made on this article are by those who have never owned a Merc, which is best to be ignored.

And those who feel Volvo is safe, also need to look at this video -

http://www.youtube.com/watch?NR=1&featur...

Apart from this, I would like to thank you Ms. Dalal for publishing my comment in your article on Worldspace Radio when it was discontinued.

P M Ravindran

5 years ago

Not only Merc but any scoundrel can get away with any crime in India because what we have for a govt is the biggest mafia in the whole world!

nilesh prabhu

5 years ago

Even HP does the same thing, first they sell a printer and after two year provide no spare parts and compel customers to buy new printers.

Big scam

nagesh kini

5 years ago

Our home grown Marutis, Tata and M&M vehicles are any day far better!
Today's papers report of Ford recalling 1.28 lakh Figo and Classic in one of the biggest ever exercises.
The liberalization ought not to have extended to opening doors to the luxury segment diesel guzzlers that occupy a lot of road space.
In the bargain we have more of the videshis. They need to be curbed by a heavier dose of taxation asap!

Vinay Isloorkar

5 years ago

14.8.12

"It will shake the world of consumer rights when people are made aware of the deceitful way in which this company has tried to cling to its past glory, while being neck-deep in immoral and unethical practices" Well said Cama Motors!

The marketplace is a great leveler. No wonder BMW and Audi are giving a fitting reply to Mercs' snobbery. In fact, if you have the moolah, owning a Merc today is infra dig.

Wilderness Films

5 years ago

For me, it was simple. I bought a new E class back in 2001 and it was so terrible to start with - so plasticky and plain on the inside, and so dreadful in terms of performance, that I swore to never buy another Mercedes and leave the brand to the new-money-upstarts who so love it, for their know no better!

My litany of complaints:

My new car developed three major problems, all within the first few thousand kilometers.

The car had driven just 1000 km. in all, and the sensors stopped working. Every time I start the car, the ESP, ABS and other sensor alarms all start going off, advising me next to visit the workshop! I have started ignoring them, which kind of defeats the purpose of having this complex sensory system in place. Having sent the car back to the workshop on three occasions within the first 2000 km. these remain unfixed!

This appears to clearly be a recurring defect in the car. Perhaps I have been given a defective car?

I seem to be facing a lot of trouble with my almost-new E220 CDI, which was purchased new in October 2001. First, the sensors stopped working when the car had been driven only a few hundred kilometers. I got rather alarmed, when I was a few hundred kilometers outside Delhi, and the car LCD ordered me to return to the workshop!

That repaired, now at the ripe old age of 2800 kilometers, my car's air-conditioning system has altogether stopped working. I have checked the fuses and they seem to be fine. I have been trying to call T&T Motors since Saturday evening, and their weekend duty guard seems set on banging the phone down on me, without giving any information.

I am such a careful driver (the condition of my car stands testimony to this) and I drive very gently, so there is no way that poor driving conditions could be responsible for the airconditioning having stopped working.

I can't drive the car till the air-conditioning is restored or repaired, depending on what is wrong with it.

In changing the sensor, I find that the car has been driven close to 150 kilometers. How can this be possible? It has merely gone to your showroom and back to my office, ostensibly. Also, a full tank of fuel is now down to a three-quarter-full tank. Perhaps someone used the car unauthorizedly while it was at your workshop? Please investigate. I also noticed over six fresh scratches, among other places, around the driver's side door opening handle. Again, please investigate.

I recall that someone else was driven in a customer's car when I came to test drive the Merc, prior to buying it. I am concerned that my own car was perhaps used as a temporary test driver vehicle during the sensor repair job, which would easily explain the extra kilometers runs, and the scratches on the paintwork...

I think I wouldn't have faced such early problems if I had bought even a Maruti 800!

Udit C

5 years ago

Shocking, especially to see that Mercedes also haS new ideas on what one can get away with in India.

Impressive benchmark for business ethics in India.

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