Citizens' Issues
India's 'silent' reforms to gather pace

According to StanChart, the pace of reforms has picked up since the BJP won two state elections in October and the Modi government is likely preparing to introduce a series of measures in the winter session of Parliament


The National Democratic Alliance (NDA) government led by Narendra Modi started reforms slowly but surely. More of its initiatives were gradually made after the budget, initially focused on micro level initiatives to improve efficiency rather than broad macro initiatives. These micro reforms – often called ‘silent’ reforms – are aimed at improving the ease of doing business in India and would gather pace in next few months, says Standard Chartered in a research note.


The report says, "The government has introduced further macro reforms since the Bharatiya Janata Party (BJP), which leads the NDA, won two important state elections in October. The process is likely to gather pace as we head into the winter session of parliament starting on 24 November. In line with our expectations, initiatives so far include an emphasis on reviving stalled projects, a commitment to fiscal consolidation via further deregulation of fuel prices, the reduction of red tape, further opening of the economy by liberalising foreign direct investment (FDI) rules, and short-term measures to improve food supply."


"Progress on labour reforms, the relaxation of procedurally complex environmental rules, and the removal of bottlenecks in the energy sector have exceeded our expectations. We think the government is on the right track and the role of silent reforms in improving India’s productivity should not be ignored. Such reforms could push India’s GDP growth to around 6% (from below 5% in FY14, year ended March 2014), with a lag. However, the government needs to accelerate unfinished reforms in order to increase growth potential further," StanChart said.



The focus of Modi government has been on micro-level policy changes to reduce bottlenecks and improve efficiency. These changes have taken place in several areas – reducing bureaucratic red tape, providing increased clarity on laws and regulations, introducing large-scale digitisation of government functions, and relaxing environmental and labour rules. StanChart said, "We think these silent reforms are important in improving the ease of doing business in India. However, the economy still faces cyclical and structural headwinds, and the impact of these reforms on economic growth might be felt only with a lag."


The pace of reforms has picked up since the BJP won two state elections in October. The Modi government has taken several steps to address bottlenecks in energy sector and is likely preparing to introduce a series of measures in the winter session of parliament. In particular, StanChart said, it would be keenly watching progress on the GST, banking/financial services reforms, and changes to the land acquisition bill. The government is also trying to relax rules on FDI norms in sectors such as in defence, railways and construction to attract new foreign investors.


"The policy action taken so far has been broadly in line with our expectations, and we are hopeful that macro reforms will continue until the budget announcement in February. Sustained reformist intent could keep asset markets buoyant and keep investors patient as they await a growth recovery," the report concluded.




2 years ago

All very well. But what guarantee is there that the "Political Risks" of doing business in India have abated? India's Constitution enshrines inequality under law and exceptions to the rule of law! India's Parliament that voted unanimously to bring about retrospective laws aimed at one entity and to expurgate truth and fact from Government approved text books contained many of those who are in power today. The Indian Republic is a nation where few lawyers and fewer judges know the law or respect it. What price the rest of the Kleptocracy? The Police? The Bureaucrats? The Politicians? The Crony Capitalists? India has one law. It is printed in copious quantities by the Reserve Bank of India to meet the profligacy of the Indian State. The employees of the Indian State require one skill and one skill alone: how to operate a currency note counting machine. The employees of the Indian State require one qualification and one qualification alone: Birth into a privileged caste, tribe, community or "minority" religion.

Personal Finance Exclusive
Why put Rs2,375.4 crore of our money in horribly mismanaged 23 co-op banks?

These banks have lost their licenses and are mismanaged by politicians. Is this the minimum government and maximum governance that Narendra Modi had promised?


The Narendra Modi government has decided to infuse Rs2,375.42 crore to revive 23 unlicensed district central cooperative banks (DCCBs). These 23 DCCBs, include 16 from Uttar Pradesh, three each from Maharashtra and Jammu & Kashmir and one from West Bengal. Last year about 45 cooperative banks, including these 23 were facing action from Reserve Bank of India (RBI) for not maintaining minimum capital and reserve requirements. The question, therefore, is why the government is keen to infuse taxpayers money in to these banks, which are struggling due to poor financial management and in many cases, suffering from misappropriation of funds? Notably, many of them are directly or indirectly controlled by politicians.

These banks have deposits base of about Rs6,839 crore and loan book of around Rs3,774 crore. However, their financial situation is not adequate for them to get licenses from the banking regulator. Once these banks are revived with the infusion of new funds, they would become eligible to get license.

In fact, last year the Prakash Bakshi Committee appointed by RBI even recommended to consolidate some very small CCBs. It had said, "The Committee has also estimated that about 58 CCBs would generally not be able to mobilise the required capital, or their business sizes are so small that they would not be sustainable in the long run and would have to be therefore consolidated with other CCBs. The Committee recommends that broad parameters for attempting such consolidations should be a minimum business level Rs200 crore for the consolidated CCB and achieving CRAR of 7% by 2014-15 and 9% by 2016-17 with a concrete action plan for contributing any additional capital that may be required."

During 2011 and 2012, the RBI and NABARD implemented a roadmap for issue of licences to unlicensed StCBs and CCBs in a non-disruptive manner, with an intention to complete the licensing agenda by end of March 2012. After considering NABARD’s recommendations for issuance of licences based on inspection or quick scrutiny, 41 out of 370 CCBs were found to be unable to meet the licensing criteria by end-March 2012. RBI, therefore, allowed time up to 30 September 2012 for concrete steps to be taken by these 41 banks and the respective state governments for meeting the licensing parameters. Based on the capital infusion and other support provided by the states, NABARD recommended for issuance of licence to 15 banks and the balance 26 CCBs, however, did not meet the criteria by the set date 30 September 2012. Further, six StCBs and 23 CCBs, which had been granted licence by RBI earlier were found to be not able to maintain the 4% CRAR as on 31 March 2012.

At present, there are 92,000 primary agricultural credit societies (PACS), 371 DCCBs with 13,000 branches and 32 state cooperative banks (StCBs) with more than 1,000 branches across the country. However, poor performance of cooperatives in the country calls into question their viability and sustainability.

According to RBI, mounting losses, growing non-performing assets (NPAs) and poor resource base are factors contributing to the decline in the performance of the cooperatives at the grass-root level. Speaking at an orientation programme in Mumbai last week, Dr Deepali Pant Joshi, executive director of RBI, had said, "The institutions at the lower/ middle level mostly depend on the higher agencies for financial support, i.e. PACS have to borrow from DCCBs and Central cooperative banks, in turn, have to borrow from the apex banks. There is thus, a chain of dependency at all levels of the cooperative credit structure for resources from the outside. If one institution underperforms, it affects the entire chain."

RBI had relaxed the criteria for licensing of rural cooperative banks stipulating CRAR of just 4%. However, the central bank felt that StCBs and DCCBs cannot continue to operate in the banking environment with such a low capital base. It then introduced the concept of capital to risk weighted assets ratio (CRAR) in December 2007 and advised these banks to disclose the level of CRAR every year as ‘notes on accounts’ to their balance sheets.

To strengthen capital structure of state and central cooperative banks, RBI later decided to prescribe a minimum CRAR and asked these banks to achieve or maintain a minimum CRAR of 7% on an ongoing basis from 31 March 2015 and 9% with effect from 31 March 2017.
According to a report submitted by RBI appointed Expert Committee to examine Three Tier Short Term Cooperative Credit Structure (ST CCS), about 238 CCBs already have a CRAR of 7% or more, and two-third of them would be able to meet additional capital requirements and sustain CRAR of at least 7% by 2014-15 and of 9% by 2016-17. "However, a large number of CCBs and some StCBs do not have adequate capital to meet even the relaxed licensing norm of 4% CRAR. The Committee recommends that 31 March 2013 may be set as the deadline for these banks to mobilise the required capital either internally or from any other external source so as to achieve 4% CRAR failing which RBI should take the necessary regulatory action," the report submitted in January 2013 says.

The Committee, headed by Prakash Bakshi estimated that 209 CCBs of the 370 CCBs will have to mobilise, as an aggregate, Rs4,024 crore by 2014-15 and Rs6,498 crore by 2016-17 to achieve CRAR of 7% and 9% respectively. Bank-wise, these amounts range from as low as Rs1.84 lakh to Rs282 crore. The Committee has estimated that about 151 CCBs should be able to mobilise the required capital from their members by asking the members to contribute amounts ranging from Rs2 to Rs4,000 over four years.

In 1966, non-scheduled cooperative banks were prescribed cash reserve ratio (CRR) of 3% and statutory liquidity ratio (SLR) of 25%, which remained unchanged for several decades. Pursuant to the amendments to the Banking Regulation Act, 1949 (AACS), CRR and SLR for all cooperative banks were brought on par with scheduled commercial banks from the fortnight beginning 12 July 2014.

On 5 June 2014, RBI asked StCBs and DCCBs to increase CRR to 4% from 3% and bring down SLR to 22.5% from 25%. The central bank gave time until 31 March 2015 to these lenders to start maintaining SLR assets.

The government had said, to implement the fund infusion scheme, a tripartite agreement in the form of memorandum of understanding (MoU), stipulating conditionalities and deliverables, will be signed between the Central Government, concerned State Governments and NABARD. During the implementation of the Scheme, operations of these 23 unlicensed DCCBs would be closely monitored by NABARD and RBI, so that they meet the licensing requirement within the time frame as prescribed in the Scheme.

Here is list of the places where the DCCBs are located:

Uttar Pradesh:  1. Deoria 2. Bahraich 3. Siddharth Nagar 4. Sultanpur 5. Jaunpur 6. Hardoi 7. Basti 8. Ballia 9. Azamgarh 10. Gorakhpur 11. Fatehpur 12. Sitapur 13. Varanasi 14. Allahabad 15. Ghazipur and 16. Faizabad

Maharashtra: 17. Buldhana 18. Nagpur 19. Wardha

Jammu & Kashmir: 20. Baramullah 21. Anantnag 22. Jammu

West Bengal: 23. Birbhum

The question is even if these 23 lenders are infused with funds to meet the RBI criteria for CRAR, how will the government make sure that these banks survive without further funding from taxpayers, especially since politicians will continue to exploit them?




2 years ago

Will set bad precedence.


2 years ago

Why to bail out cooperative banks? People keep deposits in cooperative banks to get higher rate of interest and avoid paying tax. And the banks in turn lend it out indiscriminately inviting huge bad debts. It will not be fair to utilise tax payers money for bailing out such entities which has helped unjust enrichment.

This is an area where things have to be relooked. Let the co-operatives find their survival through merger / other options.

S Santhanam

2 years ago

It is a curse in India that Public Sector Banks are controlled by the politicians running the country (that is at the centre) and the cooperative banks are controlled by the state politicians. RBI, NABARD and others are just passing the bug from one to another. Post Vaidyanathan Committee recommendations almost Rs.14,839/- has been pumped into the short term coop bank system and the condition was that the banks would wipe out the losses and increase their capital to the level of 9% CRAR. So, it is shocking to know about the GoI decision to pump in further amount of Rs.2375 crore. It is more shocking the silence of RBI and NABARD and what far these institutions are created if GoI can decide on its own to run cooperative banks in the country. RBI and NABARD have failed the people of India as those running these institutions are more concerned to cling to their posts fearing loss of jobs than to come out and stand against the decision of the GoI if they consider it is wrong.

Mahesh Bhat

2 years ago

It's Modi-Shah's so called Gujarath model replica. They successfully revived many co-op sectors in Gujrath & took complete control which enabled them to build strong votebank!


2 years ago

Spend the money in the Population Control programme instead! India badly needs it!


2 years ago

If Government maintains that this huge FUND INFUSION is done in order to protect the interests of small depositors; then instead of giving the funds to the present MANAGMENT of Banks, let the Govt. thru' RBI examine the possibility of
mergers/ acquisitions of such ailing Co-_OP.banks and their present management must be dismissed forthwith.

R S Murthy

2 years ago

Please do not throw good money after the bad money. Allow the coperatives to have a natural exit. Giving any additional fund will to finance the nefarious activities of our patriatic politicians.

Nagdeo Prasad

2 years ago


ASCI to work with government to regulate ads

A new initiative by the Department of Consumer Affairs promises better regulation and more teeth to the ASCI and its orders against errant advertisers.


The Advertising Standards Council of India (ASCI) will soon become more than just a recommending body against errant advertising. The ASCI is getting more teeth for its work, as it has now become part of an inter-ministerial monitoring committee set up by the Department of Consumer Affairs.

As of now ASCI's orders are binding only on ads that are broadcast on television. This happened when ASCI's code of ethics was made a part of the Cable Television Network Rules, 2006. As a result, ads on TV have to abide by any rulings by the Consumer Complaints Council (CCC) banning or asking for modifications in the ads.

ASCI has become more and more active, with growing concern regarding the content of advertising as it becomes even more ubiquitous. Initially, ASCI restricted itself to erroneous or faulty claims in ads, but for a while now, ASCI has been taking a strong position on the content and messages in advertisement.

With the latest move, ASCI's powers will not directly increase, in that it will not get any new powers, however, the objective of the Department of Consumer Affairs is clear that ASCI can take a more proactive role in joining efforts with other ministries which may have Acts that are violated by any advertisements.

As an example, Moneylife recently reported that ASCI had ruled against Wockhardt Hospitals' ad in Mumbai Mirror. The ruling also cited the code of ethics of the Medical Council of India (MCI) and the fact that under law medical practitioners cannot solicit clients. Under the new role that ASCI is playing with the government, ASCI would be able to intimate the Health Ministry and initiate action under the ministry.

ASCI says that in spite of the Council being a body geared towards self-regulation of ads (except TV ads), 100% of the orders that the CCC passes against TV ads, and around 80% of the orders passed against print advertisers are being complied with by the advertisers. With the growing reach of mass media, ASCI's role will only grow and evolve further in the coming years.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)