Parliament adjourned for the day

Both houses, Lok Sabha and Rajya Sabha were adjourned after condoling the death of three sitting members, including former union minister Murli Deora


Parliament was adjourned Monday after condoling the death of three sitting members, including former union minister Murli Deora.


As soon as Rajya Sabha met for the day, chairman Hamid Ansari mentioned the death of Deora in Mumbai at the age of 77.


In the Lok Sabha, members condoled the death of sitting members Hemendra Chandra Singh (BJD) and Kapil Krishna Thakur (Trinamool Congress).


Singh’s wife Pratyusha Rajeshwari Singh (BJD) has won the Lok Sabha bypoll from Kandhmal.


Lok Sabha also condoled the demise of former members Amitava Nandy, MS Sanjeevi Rao, Avaidyanath, Saifuddin Choudhury and Sanjay Singh Chauhan.


Three of the five members, elected in the recent bypolls, also took oath in the House.


Ranjanaben Bhatt (BJP), who won from Vadodara, the seat vacated by Prime Minister Narendra Modi who retained Varanasi, Pritam Gopinath Munde (BJP) from Beed in Maharashtra, the seat that fell vacant following the death of her father and union minister Gopinath Munde, and Tej Pratap Yadav (SP), elected from Mainpuri, vacated by Mulayam Singh Yadav, who retained Azamgarh, took oath.


Modi then introduced his new ministers, who were inducted into the council of ministers on 9th November.


In the Rajya Sabha, Chairman Hamid Ansari said, “In the passing away of Murli Deora, the country has lost a distinguished parliamentarian, an able administrator and a dedicated social worker.”


Deora, who served as Minister for Petroleum and Natural Gas and Corporate Affairs from January 2006 to July 2011, was a four-term Lok Sabha member and three-term Rajya Sabha member. He represented Maharashtra in the Upper House from April 2002 till his death.


Ansari also condoled the death of yoga expert BKS Iyengar, and former members Lekhraj Bachani, Jagdev Singh Talwandi and S S Rajendran.


Before adjourning for the day, the Lok Sabha also condoled the deaths due to cyclone Hudhud, Jammu and Kashmir floods and stampede in Patna during Dussehra.


Markets continue to blindly trust central banks' magical ability

Despite economic slowdown, markets continue to have faith in central banks' magical ability to change the economies with a few words, an interest rate cut or more free money.


t is considered an article of faith by most investors that emerging markets will grow faster than developed markets and that emerging markets will produce consistent growth year after year. The poster child for this thesis is China. China has grown reliably for 37 years. Despite a few disquieting factors, most economist assume that this growth will continue for the foreseeable future. However, a new study suggests otherwise.


The study by two US economists, Lant Pritchett and former US Treasury Secretary Lawrence Summers, comes to the conclusion that growth above 6% in any country rarely lasts more than 10 years.


A prime example that I used in my book ‘Investing in Emerging Markets’, is Brazil. For thirteen years between 1967 and 1980, Brazil’s average annual rate of growth was 5.2%. After 1980, Brazil’s per capita income growth was flat at zero for 22 years until 2002.


Basically what the study shows is that the median period of rapid growth is nine years. After the period of rapid growth, the median drop is 4.65%. This seems astonishing given that China has grown longer and faster than any other country. The only ones that come close are Taiwan and South Korea, which grew 32 and 29 years respectively.


It appears that time is up. There is no statistical basis to show that rapid growth in the past continues into the future. A few years ago, the big story was decoupling, as emerging market growth outpaced developed countries. But even after years of free money, emerging markets are all beginning to slow. Some of their present problems are self-inflicted. Countries like Russia and Venezuela could have avoided much of the slow down with better or at least sane government policies. Other problems are more widely spread.


One of the first has to do with the commodities slow down. Many emerging markets are dependent on commodities exports. The high prices of the last few years have been exceptionally important to their growth. The countries most harmed by the decline in commodities prices include Malaysia, Indonesia, Russia, Brazil, Columbia, Chile and any country that exports oil. There are some winners including India, the Philippines, Thailand and Turkey.


One of the biggest drivers of emerging market economies recently was the growth of a consumer culture. As millions have been lifted out of poverty, they have finally been able to purchase many consumer products long since considered necessities in the developed world. However, this growth has been slowing since 2010. It has been kept artificially alive by relatively cheap credit in places like Brazil and Korea, but the consumer credit may lead to a massive credit hangover. Many people in emerging markets had access to credit and credit cards for the first time. It is not surprising that many may have misused it. It is especially bad in places like Russia where interest rates have been raised sharply to defend the currency.


Then there is China. China’s growth has been truly spectacular by any measure, but the debt amassed in the last five years is also impressive. The headlines just this week tell of major issues. Bad loans rose to their highest level in more than nine years during the third quarter. Growth in investment, factory production, exports and retail sales all slowed in October. The economy grew by an impressive 7.3% year-over-year in the third quarter, but that was its slowest pace in more than five years. New lending was also down sharply. New bank loans were only about 70% of their normal rate. Total loans were two thirds of the September rate. According to rating credit agency Standard and Poor’s, half of all Chinese provinces deserve junk ratings. Finally, some 32% of all new credit is used to pay off the interest on existing debt.


All of this news is bad for China, but it is also bad for most of the emerging markets whose main trading partner is China. As long as China slows, commodity prices will continue to fall creating a negative cycle for a large part of the world.


The final problem is that during the boom years, few countries took advantage of the favourable conditions to enact necessary reforms. Many of these reforms like inefficient labour markets and ineffective, unfair subsidies may in the short-term cause disruptions. With the economies slowing, fewer governments will take the risk to enact unpopular policies. What Pritchett and Summers refer to as “institutional inadequacies” insure that rapid growth will be unsustainable.


Meanwhile, despite the slowdown, markets continue to have faith in central banks’ magical ability to change the economies with a few words, an interest rate cut or three and scads more free money. However, like faith in the emerging market growth stories, this one will probably not have a happy ending.


(William Gamble is president of Emerging Market Strategies. An international lawyer and economist, he developed his theories beginning with his first-hand experience and business dealings in the Russia starting in 1993. Mr Gamble holds two graduate law degrees. He was educated at Institute D'Etudes Politique, Trinity College, University of Miami School of Law, and University of Virginia Darden Graduate School of Business Administration. He was a member of the bar in three states, over four different federal courts and speaks four languages.)


The Pain of a Financial Consumer

Limited free ATMs use is only the latest blow. Financial consumers are also affected by the inability of regulators to act in time to prevent companies folding up and the lack of regulation and repeated failure of cooperative banks


A few weeks ago, the Reserve Bank of India (RBI) allowed banks to charge their account-holders for transactions on automatic teller machines (ATMs) beyond a threshold limit, with especially stringent limits for six metro cities. Tamizharasan, an advocate from Madurai, was the first to get off the mark to file a public interest litigation (PIL) against this decision. The court (Madras High Court bench in Madurai) issued notices to RBI and the Indian Banks’ Association (IBA) giving them three weeks to respond. 


The PIL alleges that RBI’s move is regressive, in support of select banks, against public interest and should be quashed. Interestingly, on the very day that the media reported this issue, Moneylife Foundation’s trustees too had come to the conclusion that a PIL was the only way to challenge the action. 
Our regular readers would recall that Moneylife Foundation, along with a few other consumer organisations, had protested strongly against this action by RBI; we sent two memorandums. RBI had come out with a strong backing of the bank cartel’s action and claimed credit for at least mandating a certain number of free transactions and capping the charges. 
RBI conceded to only one demand—about the need to create a system for reporting non-functioning ATMs. Here, too, its response was absurd and callous. An official, writing on behalf of the governor, said that RBI will ask IBA to “incorporate ways and means through which customers are enabled to report about ATMs which are not in working condition to the banks.”
Is RBI so naïve as to believe that banks do not know which of its ATMs is not functioning or have not bothered to load adequate cash? On 15th November, Saturday morning, as the weekend was just beginning, the ATM attached to a busy Shivaji Park branch of Axis Bank in Mumbai had no cash. Should one believe that the Bank was unaware of it? As a customer, I reported this fact to the Bank. What difference did it make? Nothing. The Bank gets away with it because RBI does not care. Consumers want action, not a reporting system. 
When the regulator supports a bank cartel by readily accepting their claims about transaction costs without exploring ways to reduce them, what option do depositors have? Only what advocate Tamizharasan has done—file a PIL. But it is important to get the facts and the issues right, to make it effective. 
Fortunately, there are plenty of absurdities in the banks’ claim about limiting free ATM usage charges. First, the stricter limit on ATM transactions applies to six metros, when, in fact, the higher number of transactions should lead to lower costs. Secondly, in-bank transactions, which are much more expensive, are not being charged—unless RBI plans to permit those, too, in the near future. 
Interestingly, ATM charges were a subject of hot debate at an Open House session by Moneylife Foundation on 22nd November, with its new trustees—TS Krishnamurthy (former chief election commissioner of India), Dr KC Chakrabarty (former deputy governor, RBI) and Siddharth Das, COO payment systems at Flipkart. 
Dr Chakrabarty, well known for his brutal outspokenness, said, “I don’t agree with the institutional view of the RBI… on allowing banks to charge for withdrawals from their own banks.” He demolished the claim that customers must pay for services saying, “If banks want to move to a system of transaction fees to be paid by customers, then they must also be prepared to work at very low interest spread. They cannot pay 4% on savings accounts but charge 12% or more on advances and also charge customers for transactions.” 
The low level of consumer activism in India, he said, was forcing consumers to put up with many types of uneven contracts that were bad in law. For instance, he said, a customer is penalised if his cheque bounces (it can even become a criminal case); but a bank that wrongly dishonours a cheque, gets away with, at best, an apology.
TS Krishnamurthy had a similar view when asked about the plight of investors in company deposits, ponzis, chit funds, collective investments schemes and non-banking finance companies. “We need a separate authority to regulate deposit-taking companies and it must be removed from the Companies Act.”
Two other issues that are clear pain-points for ordinary savers came up for agitated discussion. The first was the inability of regulators to act in time to prevent companies folding up and the lack of regulation and repeated failure of cooperative banks. 
Well-known investment analyst, Ambareesh Baliga, asked Mr Krishnamurthy why it was difficult for the ministry of corporate affairs (MCA) to act on investor feedback/complaints about companies. He also wanted to know why the Investor Education & Protection Fund, of over Rs1,000 crore, could not set up a separate body to take care of investors’ issues. 
Mr Krishnamurthy’s broad reaction was identical to that of Dr Chakrabarty. He said, “I totally agree that the present system of investor education and protection is grossly inadequate and there is a need to review it.” He said a lot of money was being spent on investor education but not on protection.
He further said that the new Companies Act had more provisions for regulatory action by the government; but the existing inspection machinery is absolutely inadequate. The ministry takes several years to complete inspection reports by which time the problem has worsened drastically or the company has folded up. 
He wondered why the formula adopted to keep Satyam Computers alive was not used in all other cases, where companies are spiralling out of control. He said, if the government had decided to organise the takeover Kingfisher Airlines and change its management in time, it would have saved thousands of jobs. Instead, by the time the ministry completes its report of unviable companies, they have usually shut down, with enormous job losses. Even as we go to print, there are reports of SpiceJet cancelling flights and a fear that the company is headed the Kingfisher way. Just like an investor protection authority, India needs a corporate restructuring authority that nurses sick companies back to health rather than encourage them to die, as is the case with India’s Bureau of Industrial and Financial Reconstruction (BIFR), he said. 
When it comes to cooperative banks, which are at least partly under the RBI’s benign watch, the situation is almost scary. Dr Chakrabarty said that dual regulation is part of the problem but not the only one. He said many rural cooperative banks did not even have a licence to operate but were doing so. Responding to a question, he said, “Some have applied for a licence in 1966, but RBI has not yet decided on it.” A bank analyst in the audience pointed out that consumers were expected to make informed choices, but many cooperative banks were not even obliged to put out their annual reports.  
At the end of a brutally honest interaction with two people who have held top offices in their respective fields, it was clear that the state of the financial consumer was far more worrying than we thought. 
Mr Krishnamurthy suggested the need for research and surveys to find out why most investors are not being protected today—particularly the small investor. Dr Chakrabarty is clear that a separate body for financial redress is the answer and he saw hope in the fact that there is a global consensus on this issue. Over the past five years, Moneylife Foundation’s efforts have only validated this view. 
Investors have as many complaints, or more, about the insurance regulator and the capital market regulator. Both are perpetually tinkering with rules while ignoring basic confidence-building actions like grievance redress, compensation and punishment for wrongdoing.



Yerram Raju Behara

3 years ago

I notice that banks like even the SBI are adopting invidious ways of charging the customer for ATM use like feeding some of the urban ATMs with just Rs.100 notes and pegging the release at Rs.3000. For just Rs.15000 the five-time free usage gets exhausted. Second, there are ATMs like those in Prashanthinagar Branch (UPPAL), Hyderabad of SBI that work only for 50 days in a year for the past five years and any number of customer complaints have not resulted in the change of machines that are too old to function.

Rakesh Parikh

3 years ago

Agreed - invariably around long weekends ATMs of even larger banks run out of cash; not only that very often ATMs are not functioning too; often they dispense only Rs 500 or Rs 1000 currency notes & one cannot even choose Rs 100 in almost all ATMs; why isn't RBI considering this & penalising the banks if found true upon complaints? Guess perils of having banks listed & concentrating on maximising profits..


3 years ago

first the banks said don't come to the counter, go to the ATM. now they say use the ATM sparingly or pay for it. pay for what ? for withdrawing the money that we have put in the banks. before banks start telling us "deposit and don't withdraw" is it not wise to ask the question why deposit in the banks at all ? why not keep in cash or kind ?

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