RTI Judgement Series
RTI Judgement Series: Provide information on MTM position of banks

Where MTM losses on currency derivatives are to the extent of more than Rs32,000 crore, it is certainly a matter of national importance and citizens have a right to know about the same, the CIC ruled. This is the 200th in a series of important RTI judgements given by former Central Information Commissioner Shailesh Gandhi

The Central Information Commission (CIC), while allowing an appeal, directed the Central Public Information Officer (PIO) of Reserve Bank of India (RBI) to provide information relating to mark-to-market (MTM) position of banks obtained by the central bank for discharging the regulatory and supervisory functions.

While giving the judgement on 7 December 2011, under the Right to Information (RTI) Act, Shailesh Gandhi, the then Central Information Commissioner, said, "While banks may have given information to RBI in confidence or in trust, there does not appear to be any duty cast upon RBI to act in their benefit. RBI being a regulator of the banking sector obtains and maintains such information in regulatory or supervisory capacity. Therefore, there is no element of choice as such available to banks. There does not appear to be a creation of any fiduciary relationship between RBI and the banks."

Tiruppur, Tamil Nadu resident, Raja M Shanmugam, on 12 October 2010, sought from the PIO information regarding mark to market losses on account of currency derivatives by banks and action taken by the RBI. Here is the information he sought and the reply provided by the PIO...

1. Before the Orissa High Court, RBI has filed an affidavit stating that the total mark to market losses on account of currency derivatives is to the tune of more than Rs32,000 crores. Please give bank wise breakup of the MTM losses.    
Reply of the PIO- The information sought is exempted under Sections 8(1)(a) and (e) of  RTI Act.
 
2. What is the latest figure available with RBI of the amount of losses suffered by Indian business houses? Please furnish the latest figures bank wise and customer wise.
Reply of the PIO- NIL
    
3. Please update on action taken against the erring banks who sold the exotic derivative products in contravention to FEMA Act and RBI Guidelines as per the RBI's submissions to the Orissa High Court.
Reply of the PIO- NIL

4. Recent press reports suggests RBI has also issued Show Cause Notices to Several banks that have violated RBI guidelines on the sale of exotic derivative products. Give the list of banks to which show-cause notices were issued along with the copy of the notice issued to banks.    
Reply of the PIO- NIL

5. Whether any reply received from any of the banks in response to the Show Cause Notice? If so please furnish copies of the same.
Reply of the PIO- NIL

6. RBI has listed out several violations of RBI guidelines by banks in the sale of exotic derivative products in its report filed before Orissa High Court. Whether periodical Audit of Sank branches in the years 2007 and 2008 revealed any such violation? If so, please furnish RBI Audit Report indicating the said violation.
Reply of the PIO- NIL

7. RBI has issued a circular dated the 29th of October 2008 asking the banks to park the proceeds on account of derivative losses in a separate account. However, few banks, especially State Bank of India is said to have refused to adhere to the said circular despite repeated demands from the exporters. Whether R5 has received any complaint stating that any bank is refusing to adhere to the specific circular cited above? If so furnish as copy of the same.
Reply of the PIO- NIL

8. Also if any complaint is received by RBI as stated above, please give the detail of enquiry and action taken by the RBI on the erring banks.
Reply of the PIO- NIL

9. Whether the issue of derivative losses to Indian Exporters was discussed in any of the meetings of Governor I Deputy Governor or senior official of the Reserve Bank of India? If so please furnish the minutes of the meeting where the said issue was discussed.    
Reply of the PIO- The CPIO, Foreign Exchange Department did not have information on this query.

10. Any other Action Taken Reports by RBI in this regard.    
Reply of the PIO- The CPIO, Foreign Exchange Department did not have information on this query.

Citing the information provided by the PIO as incomplete and unsatisfactory, Shanmugam, the appellant filed his first appeal.

The First Appellate Authority (FAA) noted that queries 1, 2, 9 and 10 were replied to by the CPIO of Foreign Exchange Department (FED) against which first appeal was filed by the appellant. Queries 3 to 8 were replied to by the CPIO of Department of Banking Supervision (DBS).

In his observations, the FAA noted...

Query No. 1:
The appellant has sought for bank wise break up of the MTM losses, CPIO has claimed exemption from disclosure under S. 8(1)(a) & (e) of RTI Act.

FAA observation: I agree with the CPIO that disclosure of bank wise break up of MTM losses in the derivative transactions would affect the economic interests of the state as such disclosure to the public could be detrimental to the interest of the subject bank and to the banking system in general. Also, information relating to MTM position of banks are obtained by Reserve Bank for discharging the regulatory and supervisory functions and are held by the Reserve Bank in fiduciary capacity; Therefore, I do not find any infirmity in the exemption claimed by the CPIO under S. 8(1)(a) & (e) of the RTI Act. The decision of the Hon'ble Delhi High Court, referred to by the appellant, is not applicable to the facts o this case. The observations of the Full Bench of CIC in the case of Shri Ravin Ranchchodlal Patel & ----. Reserve Bank of India (Decided on December 7, 2006), wherein absolute discretion was granted to the Reserve Bank to assess the desirability of disclosure of Inspection Report in individual cases, are equally relevant to the kind of information sought by the appellant especially when he desires to have bank wise break up. I do not consider that this is a fit case warranting invocation of S. 8(2) of RTI Act by the CPIO and accordingly, no fault can be found on the part of CPIO in not disclosing the information sought by the appellant.

Query No. 2.
The appellant desired to know the amount of losses suffered by Indian Business Houses and its latest figures, bank wise and customer wise.

FAA Observations: CPIO has not given a separate reply to this Query. Instead, he has made a cross reference to his reply to Query No. 1. I direct the CPIO to clarify to the appellant whether the information relating to the losses suffered by Indian Business Houses is available with the Reserve Bank. If available, CP is directed to consider the request of the appellant subject to the exemptions provided under the RTI Act.

Query Nos. 9&10:
The appellant wanted to know whether the issue of derivative losses to Indian exporters was discussed in any of the meetings of the Governor/ Deputy Governor or senior official of Reserve Bank and if so, to furnish the minutes of the meeting. In Query No. 10, the appellant sought for Action taken Reports by RBI in the matter. CPIO has replied that no information is available.

FAA Observations: Whether a particular state of fact exist or not, ideally has to be replied either in the affirmative or in the negative. Replying that no information is available is not appropriate. In my view, based on the records, CPIO should state whether there were any meetings or action taken reports, as sought by the appellant.  Therefore, I direct the CPIO to revisit Query Nos. 9 & 10 and give appropriate replies to the appellant. However, I wish to clarify that disclosure of minutes of meetings or copies of reports, if any, shall be subject to the exemptions provided under the RTI Act."

Not satisfied with the FAA's order, Shanmugam, then approached the CIC with his second appeal.

During the hearing on 15 November 2011, the CPIO of RBI neither appeared nor did submit any documents or letter before the Bench. Shanmugam, the appellant, who was present, sought the attention of the Bench to a judgement of Orissa High Court in WP (Crl) No344/2009. Mr Gandhi, the then Central Information Commissioner, then reserved his order.

During the hearing on 7 December 2011, Mr Gandhi said, he perused the papers including submission of the appellant, who was seeking information on queries 1, 2, 9 and 10.

The PIO denied the information on the basis of Sections 8(1)(a) and (e) of the RTI Act. The FAA has upheld the PIO's reply in query 1 and cited the CIC's decision in RR Patel vs RBI (CIC/MA/A/2006/00406 and 00150 dated 7 December 2006). As regards query 2, the FAA directed the CPIO to consider the appellant's request subject to the provisions of the RTI Act.

Relying on the CIC's decision in the RR Patel case, the FAA observed that disclosure of bank-wise break-up of MTM losses in the derivative transactions would affect the economic interests of the State as such disclosure to the public could be detrimental to the interest of the subject bank and the banking system in general.

Mr Gandhi said, "In RR Patel's Case, the Full Bench was considering the issue of disclosure of RBI's inspection report of a Cooperative Bank. One of the issues before the Bench was whether the inspection report was exempt from disclosure under Section 8(1)(a) of the RTI Act. The Full Bench relied on a decision of the Punjab & Haryana High Court in RBI vs Central Government Industrial Tribunal (dated 07/05/1958) which had observed that 'In an integrated economy like ours, the job of a regulating authority is quite complex and such an authority has to decide as to what would be the best course of action in the economic interest of the State. It is necessary that such an authority is allowed functional autonomy in decision making and as regards the process adopted for the purpose'."

Based on the above, the Full Bench, in paragraph 16, ruled inter alia that, "In view of this, and in light of the earlier discussion, we have no hesitation in holding that the RBI is entitled to claim exemption from disclosure u/s 8(1)(a) of the Act if it is satisfied that the disclosure of such report would adversely affect the economic interests of the State. The RBI is an expert body appointed to oversee this matter and we may therefore rely on its assessment. The issue is decided accordingly".

"It appears that the Full Bench was of the view that if RBI concluded that disclosure of inspection reports would adversely affect the economic interests of the State, the said information may be denied under Section 8(1)(a) of the RTI Act. There is no observation that the Full Bench had come to this conclusion by itself. Further, the observations of the Punjab & Haryana High Court in RBI vs Central Government Industrial Tribunal (dated 7 May 1958) relied on by the Full Bench were made much before the advent of the RTI Act and cannot therefore, be a guide for deciding on exemptions under the RTI Act," the Bench noted.

Furthermore, the RBI in RR Patel's case claimed that if inspection reports of banks were to be disclosed it would affect the economic interests of the state. The Full Bench decision appears to rely on the submissions of the Deputy Governor of RBI provided vide letter dated 21 November 2006 and were as follows:

"(i) Among the various responsibilities vested with RBI as the country's Central Bank, one of the major responsibilities relate to maintenance of financial stability. While disclosure of information generally would reinforce public trust in institutions, the disclosure of certain information can adversely affect the public interest and compromise financial sector stability.

(ii) The inspection carried out by RBI often brings out weaknesses in the financial institutions, systems and management of the inspected entities. Therefore, disclosure can erode public confidence not only in the inspected entity but in the banking sector as well. This could trigger a ripple effect on the deposits of not only one bank to which the information pertains but others as well due to contagion effect.

(iii) While the RBI had been conceding request for information on actions taken by it on complaints made by members of the public against the functioning of the banks and financial institutions and that they do not have any objection in giving information in respect of such action taken or in giving the substantive information pertaining to such complaints provided such information is innocuous in nature and not likely to adversely impact the system.

(iv)However, disclosure of inspection reports as ordered by the Commission in their decision dated September 6, 2006 would not be in the economic interest of the country and such disclosures would have adverse impact on the financial stability.

(v) It would not be possible to apply section 10(1) of the Act in respect of the Act in respect of the inspection report as portion of such reports when read out of context result in conveying even more misleading messages."

 
Mr Gandhi noted that the RBI argued that that it did not wish to share the information sought as some of it could "adversely affect the public interest and compromise financial sector stability". RBI was unwilling to share information, which might bring out the 'weaknesses in the financial institutions, systems and management of the inspected entities'. It was further contended that 'disclosure can erode public confidence not only in the inspected entity but in the banking sector as well. This could trigger a ripple effect on the deposits of not only one bank to which the information pertains but others as well due to contagion effect'.

He said, "It appears that the RBI argued that citizens were not mature enough to understand the implications of weaknesses, and RBI was the best judge to decide what citizens should know. Citizens must be given selective information about weaknesses exposed in inspection, to ensure that they have faith in the banking sector. They must see the financial and banking sector only to the extent, which RBI wishes. If the RBI made mistakes, or there was corruption, citizens would suffer. This appears to go against the basic tenets of democracy and transparency."

The CIC cited a clarion call in State of Uttar Pradesh vs Raj Narain (1975) 4 SCC 428, by Justice Mathew that stated...

"In a government of responsibility like ours, where all the agents of the public must be responsible for their conduct, there can be but few secrets. The people of this country have a right to know every public act, everything that is done in a public way by their public functionaries. They are entitled to know the particulars of every public transaction in all its bearing. Their right to know, which is derived from the concept of freedom of speech, though not absolute, is a factor which should make one wary when secrecy is claimed for transactions which can at any rate have no repercussion on public security".

Mr Gandhi said, "The idea that citizens are not mature enough to understand and will panic is repugnant to democracy. The exemptions under Section 8 and 9 of the RTI Act are the constraints put by Parliament and adjudicating bodies have to carefully consider whether the exemptions apply before denying any information under the RTI framework."

"It is pertinent to mention that in RR Patel's case, the Full Bench did not come to any specific conclusion that disclosure of inspection reports would prejudicially affect the economic interests of the State. Instead it left it to RBI to determine whether disclosure of the said information would attract Section 8(1)(a) of the RTI Act. This was primarily on the basis that RBI is an expert body and that any decision taken by it should be relied upon by the Commission. No legal reasoning whatsoever was given by the Bench for concluding the above. There is no evidence or indication that the Commission after taking cognizance of RBI's views had come to the same conclusion."

"If the position of the Full Bench is to be accepted, it would lead to a situation where RBI would have the final say in whether information should be provided to a citizen or not. Extending this logic, all public authorities could be the best judge of what information could be disclosed, since they are likely to be experts in matters connected with their working. In such an event the Information Commission would have no role to play. Parliament evidently expected that the Information Commission would independently decide whether the exemptions are applicable. The Full Bench did not give any independent finding that the disclosure of information would affect the economic interests of the State in its decision. This would completely negate the fundamental right to information guaranteed to the citizens under the RTI Act. In the case being considered by the full bench, it decided to accept the judgment of RBI. It is open to a Commission to defer to a judgment of another body, but this does not establish any principle of law, and would apply only to the specific matter," Mr Gandhi said.

The Bench said, "It is apparent from the scheme of the RTI Act that the Commission is a quasi- judicial body which is responsible for deciding appeals and complaints arising under the RTI Act. While deciding such cases, the Commission would necessarily have to consider whether there were any cogent reasons for denial of information under Sections 8 and 9 of the RTI Act. Since the Full Bench has not recorded any comment which shows that it consciously agreed that Section 8 (1)(a) of the RTI Act was applicable in such matters, it does not establish any legal principle or interpretation which can be considered as a precedent or ratio. Thus the decision is applicable only to the particular matter before it, and does not become a binding precedent."

Mr Gandhi said, the powers of the Commission are limited under the RTI Act and certainly do not confer upon it the power of review. "It is clear from the Full Bench ruling in RR Patel's case that it was reviewing the two decisions of Professor MM Ansari, then Information Commissioner on merits. The Full Bench certainly did not have the power to do so, given the provisions of the RTI Act and the law laid down by the Supreme Court in this regard. In fact, the Supreme Court in the Kapra Mazdoor Ekta Union Case clearly considered and clarified the ruling in the Grindlays' Bank Case (relied upon by the Full Bench). It appears that the Full Bench reviewed the issues based on merits in RR Patel's case in ignorance of the law laid down by the Supreme Court in Kapra Mazdoor Ekta Union Case. In other words, the RR Patel Case is per incuriam and is consequently, not binding on this Bench," he added.

"Having laid down the above," Mr Gandhi said, "this Bench is of opinion that even if the information sought was exempted under Section 8(1)(a) of the RTI Act,-as claimed by the Respondent,- Section 8(2) of the RTI Act would mandate disclosure of the information sought."

Section 8 (2) of the RTI Act states, "Notwithstanding anything in the Official Secrets Act, 1923 nor any of the exemptions permissible in accordance with sub-section (1), a public authority may allow access to information, if public interests in disclosure outweighs the harm to the protected interests".

Mr Gandhi noted that the RBI is a regulatory authority which is responsible for inter alia monitoring banks and financial institutions along with flow of public funds and forex in accordance with applicable law. "In the present matter where MTM losses on currency derivatives are to the extent of more than Rs32,000 crores, it is certainly a matter of national importance. There appears to be a large financial scam affecting the economy as a whole and citizens have a right to know about the same," he added.

The Bench then considered whether information sought in queries 1 and 2 is exempt from disclosure under Section 8(1)(e) of the RTI Act.

Section 8(1)(e) of the RTI Act exempts from disclosure "information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information;".

Mr Gandhi said, "This Bench, in a number of decisions, has held that the traditional definition of a fiduciary is a person who occupies a position of trust in relation to someone else, therefore requiring him to act for the latter's benefit within the scope of that relationship. Information provided in discharge of a statutory requirement, or to obtain a job, or to get a license, cannot be considered to have been given in a fiduciary relationship."

The PIO has denied information on queries 1 and 2 on the basis of Section 8(1)(e) of the RTI Act. This was upheld by the FAA which further observed that information relating to MTM position of banks are obtained by RBI for discharging the regulatory and supervisory functions and are held by RBI in fiduciary capacity.  

However, Mr Gandhi said, "Information provided by banks or institutions subordinate to RBI is done in fulfilment of statutory compliance. This would not create any fiduciary relationship as such between RBI and the subordinate banks or institutions. The criteria defining a fiduciary relationship, as described above, must be satisfied which does not appear to have been done in the present matter. Inspections, audits and investigations are done by RBI officers as part of statutory duty and banks have to undergo this in compliance with statutory requirements. Therefore, the denial of information on queries 1 and 2 on the basis of Section 8(1)(e) is rejected".

While allowing the appeal, the Bench directed the CPIO of FED to provide complete information to Shanmugam on queries 1, 2, 9 and 10 before 5 January 2012.

CENTRAL INFORMATION COMMISSION

Decision No. CIC/SG/A/2011/001966/16167
http://www.rti.india.gov.in/cic_decisions/CIC_SG_A_2011_001966_16167_M_71930.pdf
Appeal No. CIC/SG/A/2011/001966

Appellant                    : Raja M Shanmugam,
                                        President - Forex Derivative Consumer's Forum,
                                       33B, Vaikkal Thottam,
                                       Sherieff Colony,
                                       Tiruppur - 641604
                                                                       
Respondent              : Central Public Information Officer,
                                      Reserve Bank of India,
                                     Foreign Exchange Department,
                                     Central Office, Central Office Building,
                                     Shahid Bhagat Singh Marg,
                                      PB No. 1055, Mumbai - 400001

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COMMENTS

Ramesh Poapt

3 years ago

superb article!!!

Tax Torture


The common man is burdened not only with paying taxes but complying with the maddening laws that come with severe penalties. This pain and anguish is exacerbated when the taxpayer has to run from pillar to post for something as simple as getting credit for the taxes already paid. Ameet Patel, chartered accountant and tax partner at SKP group, has an insider’s view of how horrible the situation has become, thanks to three developments—computerisation, tax-deduction at source (TDS) and collection targets set for tax officers. He explains, with real-life examples, the biggest problem that most taxpayers face today—getting credit for the taxes paid by them—in particular, for TDS. He brings to light the brazenness and insensitivity of the tax officers. Don’t miss this Cover Story on our rotten tax system by a tax expert.

In her Crosshairs section, Sucheta writes on how RBI governor, Dr Raghuram Rajan, has made a strong pitch for a level-playing field for bank customers. While Dr Rajan mentioned several vexing issues that banks have ignored for years, he is yet to touch upon the areas that cause serious losses, or harassment, to customers, like the rampant mis-selling of third-party products.

Sucheta, in her Different Strokes column, discusses the vexing issue of gas prices and the influence of Mukesh Ambani. The Congress-led UPA was all set to double gas prices in April 2014, but for the Election Commission’s order to defer it till 16th May. This will be the first big decision for the new government. If you are curious about the gas pricing issue, do not miss a new book that has just been launched, Gas Wars, by veteran journalist Paranjoy Guha Thakurta.

Corporate fixed deposits have been a popular option since the 1980s. But, since these are unsecured, many companies took investors for a ride. The new Companies Act provides some safeguards; SD Israni explains these in his column.

As always, do write to us about what you would like us to focus on. And don’t forget to check out our new service, Moneylife Smart Savers Network. Its meant for everybody.
 

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ILLEGAL BUSINESS

This is with regard to “Subrata Roy of Sahara Meets the Law” by Sucheta Dalal. The national economy is being damaged by a large number of companies involved in the illegal business of taking huge public deposits. This activity may even have implications for national integrity and security, apart from the risk to investors. The following facts have been gathered from newspapers and through information obtained from friends and relatives:

(a) As per the advertisement issued by Sahara India, it has deposited Rs700 crore TDS (tax deduction at source) with the income-tax department. Certainly, Sahara must have deducted Rs700 crore tax on the interest of a minimum of Rs7,000 crore. Is it not a matter of concern for any agency and even regulator like the Reserve Bank of India (RBI) and Security and Exchange Board of India (SEBI)?

(b) As per the order of Honourable Supreme Court, Sahara India is supposed to refund Rs24,000 crore to investors. The Sahara group is continuing to collect deposits from the public under different schemes like daily, monthly and fixed deposits. It is reported that in small places, like Mahagama (block headquarter) in Godda district (Jharkhand), around Rs2 crore is mobilised in a month by Sahara. Probably, Sahara’s  regional office in Bhagalpur (Bihar) mobilises, on an average, around Rs10 crore every month. If this is taken as the minimum amount, it may reach up to Rs5,000 crore in a month.

(c ) Sahara has been sponsoring cricket for many years. I believe, the amount collected from the public was being used to sponsor cricket. Was the source of funding used to sponsor cricket examined by any agency?

(d) Some groups, like Prayag Group, Pratigya Group, Vishwamitra India Pariwar, Sai Prasad, PACL, etc, have been issuing big advertisements regularly in the local editions of Hindi newspapers like Hindustan, Prabhat Khabar and Dainik Jagran in Bihar and Jharkhand. The content and facts of these advertisements explain their working. Neither media nor the officers of regional offices of RBI and SEBI have shown their concern. Even local administrative and police officers have not taken action.

(e) Big programmes like ‘camps’ in the month of Shrawan, Kavi Sammelan, Basant Mela, Kisan Mela, etc, are organised by various groups along with the local newspaper. In fact, some local newspapers and politicians have played a vital role in the promotion of illegal business of these companies.

(f) Big hoardings are being displayed by these groups in prominent places in many cities.

(g)  Saradha group of West Bengal fled after mobilisation of around Rs30,000 crore.
Various groups/companies are operating under these names including: Sahara Group, Pratigya Group, Vishwamitra India Pariwar, Sai Prasad, PACL, Roofers India, Apna Pariwar, Rose Valley, Alchemist, Geetanjali, Arshdeep Finance, Aim Fill, Sunshine, Sunplant, Real Bond, Triolian India, Suraha, Active Group and Global Trust, etc.
This shows how well the economy is being regulated!

Sanjit Kumar, online comment

MIS-SELLING BY BANKERS

This is with regard to the Cover Story in Moneylife (3 April 2014) on mis-selling of life insurance. In the article, you have named corporate agents, brokers and telemarketers for mis-selling of life insurance. How could you have missed out bankers who are indulging in it on a huge scale?

Satyadev Verma, by email

Raj Pradhan replies:
The Moneylife Cover Story did cover bank personnel-related fraud. The third point in the Cover Story is “Frauds by Banks and Insurer Branch/Agent”. It has the example of an HDFC Bank-related case. But the kind of fraud perpetuated by telemarketers, corporate agents, brokers, who are involved in selling over the phone, is in a different league than mis-selling under bancassurance. Over the phone selling, after building trust and making fraudulent offers of ‘interest-free’ loans is not seen in mis-selling by banks. This is because it will be easier to arrest a banker who mis-sells than those who do so over the phone. Hence, the focus of the Cover Story was not on bancassurance-related cases.


WE TAKE PRIDE IN IT

This is with regard to “Silence over the Loot of PSU Banks” by Sucheta Dalal. RBI’s transparency is merely on paper. It releases documents for comments and discussion but always places only its draft submissions on the website. What prevents RBI from making known to people the suggestions it receives and those which it rejects?

Secondly, how on earth does RBI allow thousands of crores of rupees of lending to turn into NPAs (Non-Performing Assets), when it has regular information on the corporate loans sanctioned, directors’ interests, CDRs (Corporate Debt Restructuring), etc? An RBI representative sits on the PSB (Public Sector Bank) boards. Is there regulatory arbitrage? Therefore, is RBI a silent spectator on the misdemeanours of banks?

The latest issue of The Economist commends two institutions in our economy and body politic—RBI and the Supreme Court. We definitely take pride in these. But the recent happenings at the United Bank of India—of allowing the chairperson to voluntarily retire after the huge NPAs surfaced—leaves many in doubt.

Yerram Raju Behara, online comment

MONTHLY PAYMENT OF INTEREST?

I am a regular reader of Moneylife. Furthermore, as a senior citizen whose family depends solely on interest from savings with the bank, I would like to bring the following points to your readers’ attention.

Banks are doing their business mainly by borrowing money from the public which is lent out to others. In both cases, interest is the main factor. Banks pay interest to the public, i.e., those who keep their savings with banks and, simultaneously, banks collect interest from those who borrow the funds. Bank charges a higher rate of interest from the borrowers than the interest rate they pay for depositors’ funds.

Another vital factor is in play, in this business. Though the bank collects interest on a monthly basis, it pays interest to the public quarterly on term deposits and half-yearly in case of other deposits. The Reserve Bank of India, the main banking regulator, is fully aware of this practice and, to protect the depositors from bankers, it issued a circular (DBOD.No.Dir.BC. 69/13.03.00/2013-14 November 29, 2013) which reads: “Banks will now have the option to pay interest on rupee savings and term deposits at intervals shorter than quarterly intervals.”

The circular appears very pro-depositors; but although three months have passed since it was issued, no bank has yet started paying monthly interest either on savings or term deposits. A perusal of the RBI circular makes it clear that RBI has purposely used the word OPTION—which means it IS NOT A DIRECTIVE, but a simple request to banks. Therefore, to follow it or not depends upon the discretion of the banks. UCO Bank has introduced a new fixed deposit scheme where monthly payment of interest has been provided.

Paying interest on a monthly basis will be a great financial help to those who depend mainly of bank interest. Hence, RBI should have played a more proactive role. However, the above-mentioned circular is a glaring example of how weak a financial regulator we have in our country. I would request Moneylife to look into this area.

Bipulendu Basu, by email

REAL CUSTOMER OPINION

This is with regard to “On your marks, get set and GO! With the Datsun” by Bapoo and Divya Malcolm. This review is so enjoyable mainly because Malcolm & Co bring their personal perspective on a vehicle, quite different from an auto journalist’s take. It felt like a real customer’s opinion, with a lawyer’s eye for detail!

Jerin Chacko

DECAY IN FISH?

This is with regard to “UBI: Questionable Appointment” by Sucheta Dalal. There is an Assamese saying: ‘fish starts decaying from the head’. This holds true in the case of United Bank of India which was headed by Archana Bhargava; it decayed from the head. So long as there is political clout in selection of CMDs (chairmen & managing directors), banking organisations remain susceptible to get more Archana Bhargavas as their head.

Ramesh Jaradhara

DO’s VERSUS DON’Ts

This is with regard to “MCA & ICAI’s mantra: Invest in PSU IPOs!” Nice investor education this. Beginners will surely get an early lesson... about what NOT to do. And, in equity investing, the Dont’s are far more important than the Do’s.

Nilesh Kamerkar

BETRAYING OUR TRUST

This is with regard to “Aadhaar: Once allotted, you can never cancel it, reveals RTI” by Vinita Deshmukh. Never expected that a respected person of Nandan Nilekani’s calibre would be so lax about other people’s identity. Where is his Infosys motto: “Powered by trust, driven by intelligence”? He has betrayed our trust! Very sad.

Hemlata Mohan

DAMOCLE’S SWORD

This is with regard to “Can RBI’s policies alone tackle rising NPAs deftly?” by Abhirup Ghosh. I am in full agreement with what has been said. The CMDs of banks get away, while the others (lower-ranking officials) are made sacrificial goats. As long as the fear of the Central Vigilance Commission dangles like a Damocles’ sword, honest bankers can never perform without fear. The ever popular comment in banking circles is that “only industries are sick; the industrialists are healthy.”

SK Nataraj

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