Money & Banking
Rajan says banks needs to review priority sector lending categories

The RBI governor said recent scandals underlined the need for better internal evaluation of lending processes and banking must become more engaged and informed


Reserve Bank of India (RBI) governor Dr Raghuram Rajan feels that the banking sector needs to question the categories under priority sector lending.


Speaking at a banking conference organised by FICCI, he said, "Select special sectors need ease of credit ... the biggest need for agriculture is long-term money while farmers don't get long-term loans because short-term loans are subsidised".


He said bankers need to "ask if students studying abroad are more needy?"


Reiterating a host of issues in the banking sector, Dr Rajan added that select special sectors need ease of credit. Interest subventions and loan waiver schemes can distort prices and lead to unhealthy borrowing practices, he added.


The RBI governor pointed out that the loan waivers, as proposed by the Andhra Pradesh chief minister, were not healthy for the banking system and could distort prices and the credit culture.


Further, he said the Pradhan Mantri Jan Dhan Yojna is an internal priority and that direct benefit transfers would reduce leakage and limit distortion of prices.


He also cautioned banks on duplication of accounts opened and asked them to ensure that the newly opened accounts work and make the scheme more effective.


The priority sector lending requirement currently is at a minimum of 40%, including sectors such as agriculture, education, rural housing, micro and small sector enterprises, among others.


It is time the government de-regulated diesel prices in the wake of falling global crude oil prices, the RBI Governor said.


He said falling inflation was consistent with the RBI’s forecast. According to the RBI Governor, the dip in IIP showed recovery was still uneven.


Recent scandals underlined the need for better internal evaluation of lending processes. Banking must become more engaged and informed, he said.


Rajan reiterated the call for more operational freedom for State-run banks.



MG Warrier

3 years ago

The concept of priority sector lending was introduced to ensure credit flow from the banking sector to certain neglected sectors including agriculture. The need for some persuasion to encourage banking system to provide adequate credit to priority sector is still there as banks on their own would prefer to deploy credit in bigger urban ventures. Several attempts to shift responsibility by lending to service/consumer sectors, investing in RIDF etc were allowed to achieve priority sector targets. Internal reviews by RBI or at state level forums also concentrated on ‘targets’ and their achievement and a comprehensive look at willingness and capability of each bank to finance priority sector especially in rural areas is yet to happen. Viewed in this context the loud thoughts by RBI Governor is most welcome. Still, the review need to be done by RBI and GOI and appropriate guidance should be issued to banking system

SC asks Prashant Bhushan to reveal source in Sinha guest list case

The Bench asked Bhushan to name the whistleblower in the sealed envelope and said that it will go into the merits of allegations after knowing the source of information


The Supreme Court on Monday directed advocate Prashant Bhushan, who has levelled allegations against Ranjit Sinha, the director of Central Bureau of Investigation (CBI) of protecting the accused in the 2G case, to reveal the name of the whistleblower from whom he got CBI documents and guest list at Sinha's residence.


A Bench headed by Justice HL Dattu asked Bhushan to name the whistleblower in the sealed envelope on the next date of hearing and said that it will go into the merits of allegations after knowing the source of information, as it may have ramification on the reputation of the director and also affect the ongoing trial in the 2G scam.


It said that the affidavit filed by Bhushan is not in consonance with the Supreme Court rules and asked him to reveal the source from whom he got all the documents.


The CBI director questioned the very existence of the diary before the apex court and said that 90 per cent of the entries were fudged though some entries may be genuine.


Advocate Vikash Singh, appearing for the top cop, submitted that somebody else is controlling the proceedings in the case and raised questions on how a media group published a story in advance that Bhushan will be depositing the original guest list before the apex court.


He alleged that a corporate house is working behind all these controversies and it is intended to benefit the accused in the 2G scam.


The Bench also wanted to know the stand of CBI in the controversy but the senior advocate K K Venugopal, appearing for the agency, refused to get into it, saying that it is a matter between advocate Prashant Bhushan and the director.


It then directed its registry to keep all the documents and affidavits filed by CBI director in a sealed cover and deposit them with the Secretary General for safe custody.


The apex court posted the matter for further hearing on 22nd September.


Is the gas price saga coming to an end?

What is needed is a pricing policy that should be market-driven. Policy on gas pricing should have to be realistic and practical!


It may be recalled that the gas price saga actually began in January this year. The gazetted new price could not be implemented with effect from 1st April, due to the Election Commission's directive, that the same may influence the voters. This was postponed, as reported earlier, and the Bharatiya Janata Party (BJP) government then decided to review the pricing situation and deferred it for 90 days, setting itself a deadline date of 30th September. We are just two weeks from the D-day!


It appears that the high level panel, consisting of senior secretaries of Power, Fertiliser, Petroleum & Gas ministries have made in depth studies and their findings in a report will finally be reviewed with the Finance Minister. A final call on the gas price applicable will be made.


At the moment, gas price continues to be $4.2 per million British thermal unit (mmBtu). As against this, the imported gas price, on a long term supply basis would have been $15, while the spot price hovered around $16 per mmBtu. The Rangarajan Committee had recommended doubling the price to $8.40 per mmBtu.


The Kelkar Committee, it may be remembered, had suggested that the non-renewable resource like gas has to be sold by auction to the highest bidder. The Rangarajan Committee, as mentioned above, came with a price level of $8.40 which, compared to the current international price, is 50% cheaper!


Until such time India is able to source its own gas, from known wells, or from newly to be discovered wells, it will still have to import at least 30% of its needs. But then, the needs are rising by the hour! And the international explorers are literally scared of the (New Exploration Licensing Policy (NELP) because of the uncertainty associated with exploration on one hand and the unknown "price" factor that may come to play on the other!


What is needed is a pricing policy that should be market-driven. Policy on such issue should have to be realistic and practical!


For instance, let us take a hypothetical case. In the Kolar Gold Mines in Karnataka, or in some other state like Rajasthan, our geologists (or some foreign explorer) may discover mammoth strains of gold-bearing rocks. If these are properly mined and processed, let's say, India would be able to produce a few hundred tonnes of gold every year. Would the government then decide and announce a selling price of this gold at 50% or even 15% cheaper than the international market price, because it has been "found" indigenously? Or, will they turn around smugly and say the gold price will fall in line with the international market? Hence, pricing of products of such nature ought to be based on market conditions.


As for the gas, even the government-owned ONGC has been demanding a workable price of $7 per mmBtu to make off-shore operations viable. This does not mean that on shore discovered gas ought to be priced lower! Profit motivation will drive enterprises to work harder and seriously to focus on their sole aim of discovering such valuable products.


Therefore, bearing in mind our growing needs of gas, it is hoped that when the final call is taken on pricing, the following factors may be borne in mind:


a) decide the price of gas in rupees, valid for six months, with effect from 1 October 2014


b) international price of gas has no bearing on the indigenous production; if at all any link is to be established, as a guiding factor, than, any price variation over plus/minus 5% over the current price of $15 will be adjusted for the next six months, starting 1st April 2015. This will be done automatically, without any suspension of supplies.


c) fertiliser units will be given their full needs from available supplies, but in the same pattern as of now. They need to price their final fertiliser products based on their own actual cost of both indigenous and imported gas; government must gradually reduce the subsidy


d) gas producers need to be encouraged to retain 25% of any increased production that they may be able to achieve, from current levels, and be allowed to offer the same at the market price


e) FDIs in NELP - if and when they "discover" oil/gas, they shall be paid in denominated foreign currency, say in dollars; price to be applicable in the same manner as explained for rupee payment to indigenous explorer, like Reliance, ONGC, Cairn or Gujarat Gas or any other


f) in case of foreign partner of the contractor, like in case of Reliance having BP and Niko, they need to be assured that their profits shall be repatriated in the normal way, as per exchange rate ruling on the day of transaction


g) do not mix the imported and indigenous gas prices to arrive at any "pooling price", as this will only create opportunities for lengthy debates


When such an announcement is made, there are bound to be some counter proposals/ requests from the gas producers. These should be considered without prejudice so that work goes on without interruption, and thereby bring trust and confidence in the international market.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)




3 years ago

Finally The crony capitalism is winning. As in coal block supreme Court deallocated. Why not In gas exploration ?

Dr Anantha K Ramdas

3 years ago

MR Rajeev Mohata: Regret to note your comments but if you have been a regular reader on the subject, which has been covered by many, it would be clear that this is not a PR exercise.

Perhaps you would do well to look up what was the result of the nationalization of the coal industry some three decades ago? We are still in a mess. We still import millions of tonnes of coal.

Take ONGC, which is a totally government owned company. Look at what is happening ... they discovered oil/gas years ago in the east coast and their chairman has just stated couple of days ago that they expect to start production in 2018! If this was in the hands of
Cairn, Reliance or anybody else, they would have started production
long ago.

My understanding of this is that Reliance is not a "labour" contractor - they have a lot more to do in the technical front as well.

Once a contract is signed, both parties must honour terms and conditions they accepted. The aam aadmi is interested in getting the final product and not interested in petty accusations of the involved parties. They must get on the job and deliver.


Rajeev Mohata

In Reply to Dr Anantha K Ramdas 3 years ago

Dear Dr Ramdas
You have once again fail to answer my pointed questions about the bid and contract which RIL signed with GoI when it applied for the exploration license under NELP? You mentioned in your comment that both parties must honor terms and conditions. But then I haven't come across one article which mentions any breach of T&C on part of GoI. BTW we all can see today,after SC judgement, that it was not the nationalization which is the problem. The problem is crony capitalism of Indian businesses which has led us to deep mess in coal industry,telecom industry or state run banks. And with the latest SC ruling, it makes the argument more credible that most big businesses in India are ready to loot the nation by colluding with corrupt bureaucrats and politicians. And for the record the common citizen is indeed interested in these not so petty accusations/demands/threats of reduced gas production by RIL.

Rajeev Mohata

3 years ago

This whole article reads like a PR plug to somehow make it look like Reliance is bleeding to death because of the current gas price. The writer fails to explain that if the gas price was so slow, then why did Reliance made the bid in the first place to get the license to explore? Also, why would Reliance suddenly want to change the terms and conditions of the tender which it got? Finally, if it so unprofitable, then why is Reliance not giving up production and hand over the wells back to Govt.?


3 years ago

Natural resources are property of nation and explorer is a labour contractor and he has no right on gas so the explorer has right to receive only exploring charges only nothing else

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)