According to Care Ratings, the RBI may contemplate a rate cut if the WPI and CPI figures continue to move downwards over the next two months
There finally seems to be some respite in the economy with the retail inflation for the month of December 2013, as measured by the consumer price index (CPI), sliding to 9.87% from its previous level of 11.24% in November. With the CPI inflation coming in at a lower level in December, Care Ratings said it reiterates its expectation of a lower figure for wholesale price index (WPI).
"The Reserve Bank of India (RBI) may contemplate a rate cut if the wholesale price index (WPI) and CPI figures continue to move downwards in the next two months. Hence, while no change is expected in RBI stance in January, they could reconsider their options in March if such a trend persists," the ratings agency said.
Rising food prices which was the major contributor towards high inflation figures is finally reversing trend with a decline in growth from 14.72% in November to 12.16% in December. The monthly movement of the overall CPI index shows a decrease reversing the upward trend it maintained since July 2013, recording its first single digit figure after three months, the ratings agency said in a report.
Care Ratings said, food and beverage witnessed the largest drop to 12.16% in December from 14.72% in November. It has been the driving factor behind the comparatively lower CPI figure for December.
Among the food articles, the vegetables basket recorded the steepest reduction in prices ending their upward streak at 38.76% as against 61.60% in November and 45.67% in October’13. Care Ratings said, "This was expected as the new vegetable crop had started coming in the month of December. Also, decline in vegetable prices has been the sole riding factor behind the significant fall in CPI inflation in December".
"While inflation in food and beverages has moderated positively," the ratings agency said, "the figures for fuel and light and clothing, bedding and footwear remain higher. Fuel prices can be expected to rise in the near future as well with prices of LPG and diesel being progressively aligned to market rates."
The CAG said Maharashtra undertook projects that were not permissible under the MNREGA while delays in execution cost the state over Rs80 crore
Irregular expenditure and delay in execution of the Mahatma Gandhi National Rural Employment Guarantee (MNREGA) scheme in Maharashtra cost the state exchequer Rs81.47 crore.
According to the annual report of the Comptroller and Auditor General (CAG), works not permissible under the scheme were undertaken leading to irregular expenditure of Rs47.19 crore while due to delay in execution of work, a number of works were abandoned leading to another unfruitful expenditure of Rs34.28 crore.
The annual CAG report tabled in December said, project completion report was not accompanied by report of Vigilance and Monitoring Committee or photographs of completed work.
The CAG said there were delays in payment of wages and unemployment allowance. Also, differential in wages due to revision in wage rates too remained unpaid.
There were shortfalls in verifications and inspection works and conducting of social audit. The management information system database did not provide an assurance on its reliability, the report added.
The implementation of MGNREGA in the state was 'deficient' as eight of the nine test-checked districts did not prepare the District Perspective Plans (DPP) to facilitate advance planning for effective implementation of the scheme.
The annual development plans were also 'unrealistic' as the quantum of employment actually provided against the estimated demand was substantially down, the CAG noted.
The CAG has also found that in the Pradhan Mantri Gram Sadak Yojna, irregular price escalation amounting to Rs17.84 crore were allowed to contractors in respect of 61 works though none of the works were completed within the specified time limit in the contracts.
Also, item rates were revised during execution, leading to an irregular payment to the tune of Rs92.43 lakh to the contractor, the report said.
The RBI needs to come out with comprehensive guidelines on KYC to ensure that customers are not harassed by banks. At the same time customers should also be made to get involved in the ongoing KYC process at banks
Know Your Customer (KYC) is a process to identify the veracity of a customer’s identity as well residence proof. This is an integral part of establishing business relationship with a customer for banks and financial institutions. Additionally, the KYC process helps prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. Last, but not the least, KYC procedures also enable banks to understand their customers and their financial dealings better which in turn help them manage their risks prudently.
Banks and financial institutions grapple with the issues related to the KYC compliance. Non-compliance of KYC is a major challenge faced by the banks in India. There are two aspects of KYC compliance that banks need to monitor. The first aspect that they need to check is whether the employees are following the KYC guidelines properly or not. The second, but no less important, is the co-operation of customers. Without help from customers, it is difficult for a bank to build a robust KYC process.
The role of the customer is important in the KYC process at two critical steps: first, when the account is opened; second, when the ongoing process of KYC once business relationship has been established. While the first step of KYC is easy to monitor, it is in the ongoing process of KYC that many banks face challenge.
The guidelines of Reserve Bank of India (RBI) on KYC process states that banks should follow ‘risk-based’ approach of KYC process and classify customers into low, medium and high risk. The significance of classification lies in the fact that ongoing KYC process is driven by the classification. As per RBI guidelines, “Banks should introduce a system of periodical updation of customer identification data (including photograph/s) after the account is opened. The periodicity of such updation should not be less than once in five years in case of low risk category customers and not less than once in two years in case of high and medium risk categories. Such verification should be done irrespective of whether the account has been transferred from one branch to another and banks are required to also maintain records of transactions as prescribed”.
After master circular was issued on 1st July, the RBI carried out amendment in these guidelines for low and medium risk customers which were mentioned by central bank in the notification.
So considering the above guidelines, what should a bank do, say for a low risk customer who has failed to produce updated customer identification data? The Bank has two options. First, close the account, especially, if it has become dormant and has nominal balance. Second, the customer should be penalised for failing to submit KYC documents. A bank faces a challenge in intimating customers about the need to re-submit documents, after specified number of years, as many customers move from their initial residence and it also involves cost.
SBI’s recent initiative
State Bank of India (SBI) has started an initiative in this direction recently. It has come out with advertisement in the newspapers asking customers to comply with KYC requirements at the earliest and has provided a timeline up to 28th February for customers to comply with KYC guidelines. Customers who have not complied with KYC will attract a nominal charge of Rs112. There are restrictions also going to be placed on these accounts by the bank. Also a certain category of account is liable to get closed as well.
Is this a right move by the bank? Does this need to be made a permanent feature of KYC process and should it get complete regulatory backing? Should there be a provision for penalty and not just charges?
The answer is a firm yes.
In order to ensure better compliance process, the bank should penalise a nominal amount to customer if he, or she, fails to provide documents related to proof of residence and identity and other relevant documents wherever applicable. This will act as a deterrent for the customer who tends to take KYC compliance as the responsibility of the banks and not that of the customer. The regulator should come out with comprehensive guidelines on this to ensure that customers are not harassed; however the customers should be made to get involved in the ongoing KYC process.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)