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All India Bank Strike on 22nd August 2017 by UFBU | Latest Bank Strikes in 2017

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All India Bank Strike on 22nd August 2017 by UFBU | Latest Bank Strikes in 2017

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Developments in SLP in matter of 100 % DA case in Supreme Court on 26 July 2017

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Developments in SLP in matter of 100 % DA case in Supreme Court on 26 July 2017

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Banking News Dated 29 July 2017

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Banking News: July 29, 2017


RBI sets up Supervisory Colleges for six Banks
which have sizeable international presence

The Business Standard
Published on July 29, 2017


New Delhi, July 28:  Reserve Bank of India (RBI) has informed that Supervisory Colleges have been setup for the following six Scheduled Commercial Banks which have sizeable international presence: State Bank of India, ICICI Bank Ltd., Bank of India, Bank of Baroda, Axis Bank Ltd. and Punjab National Bank.

The objectives of the colleges are to enhance information exchange and cooperation among supervisors, to improve understanding of the risk profile of the banking group and thereby facilitate more effective supervision of internationally active banks.

This was stated by Shri Santosh Kumar Gangwar, Minister of State for Finance in written reply to a question in Lok Sabha today.



'Loan waiver, mounting NPAs may force
banks to stop lending to agri sector'

The Press Trust of India
Published on July 28, 2017


Waivers may impact supply of credit as lending to
 agri sector could dry up, say HDFC's economist

Mumbai, July 28 (PTI): Days after it reported spike in its own NPAs due to farm loan waivers, HDFC Bank on Friday warned that lenders may discontinue fresh lending to the agriculture sector. "Banks are likely to see increase in NPAs in the agriculture sector and a general worsening of credit culture," its economists said in a note.

"Loan waivers are likely to also impact the supply of credit as fresh lending to the agriculture sector could dry up," they added. HDFC Bank, country's second largest private sector lender, known for its asset quality, reported a 0.20 per cent jump in gross NPAs for the June quarter.

The city-headquartered bank had said up to 0.13 per cent contribution in the fresh bad loans was from the agri sector. Other lenders have also reported similar difficulties. "With some farmers receiving loan waivers, other farmers across states, even those who are able to pay, are wilfully defaulting on loans in order to get loan waivers. Thus resulting in a classic microeconomic problem called the moral hazard," it said.

Banks could adopt indirect credit approach like supplying credit through microfinance institutions, it said. Strategies, like staggering of waiver or converting loans into bonds, are also likely to create cash flow problems, it said. Flagging another concern, the note said unlike Uday Bonds for the power sector which focused on creating efficiencies in the system, there are no such measures in the farm loan side.

"Borrowings for farm loan waiver are unlike those that were done under the UDAY scheme— which were contingent on certain conditions that were aimed at improving DISCOMs' efficiency. Therefore, farm loan waivers are freebies that are overall negative for the credit culture and markets," it said.

Uttar Pradesh, Maharashtra, Punjab, Karnataka, Telangana and Andhra Pradesh have announced loan waivers recently. The bank pegged the total waivers at Rs 2.3 lakh crore or 2 per cent of the GDP in FY17.

The note argued that FY09 waiver announcement had led to changes in credit allocation and increase in defaults in India with post waiver loan performance declining faster in districts with greater exposure to the program.

Only a third of the small and marginal farmers will benefit from the move as two-thirds are outside institutional finance and depend on moneylenders or relatives, it said. Loan waivers also do not help on consumption and investment fronts, it said, citing studies done after FY09.

On crop insurance, it said insured amounts are seldom sufficient to cover the loan amounts and there is also the risk of insurance amount being used for basic necessities or funding the next sowing which does not guarantee repayments for the banks.



NPCI receives final nod from RBI to
function as Bharat Bill Payment Central Unit

Priyanka Pani
The Business Line
Published on July 29, 2017


Mumbai, July 28: National Payments Corporation of India (NPCI), the umbrella organisation for all retail payment systems, has said it has received a final nod from the Reserve Bank of India to function as the Bharat Bill Payment Central Unit (BBPCU) and operate the Bharat Bill Payment System (BBPS).

On August 31, 2016, 8 BBPS operating units, which received in-principle approval from RBI, took part in the pilot. Almost after a year of running the pilot, streamlining the technology and business processes, NPCI has now received final clearance from RBI.

A. P. Hota, MD & CEO, NPCI said, “There is a specific direction from RBI to operate the Central Unit as a Strategic Business Unit of NPCI. Nearly 45 crore bills comprising electricity, telecom, DTH, water and gas are permitted under BBPS. This initiative will provide a major push to digital payments as it is a big step forward in formalising the bill payment system in the country.”

The total number of Bharat Bill Payment Operating Units (BBPOU) certified by NPCI now stands at 24. The certified units include three public sector banks (Bank of Baroda, Union Bank of India and Indian Overseas Bank), 10 private banks, five cooperative banks and six non-bank biller aggregators.

Currently, 42 large billers in five utility sectors have been on-boarded. Major public sector banks including State Bank of India (SBI) are still under certification.

“The real impact would be visible only when SBI joins,” Hota added in a statement here today.

At present the bulk of transactions on BBPS are towards payment of electricity bills. The power sector potentially contributes to about 18 crore bills each month, of which only 10 per cent is digital. The likelihood of meeting the target of generating 25 billion digital transactions during the current financial year depends critically on the power sector getting on-boarded on the BBPS system.

About BBPS

The Bharat Bill Payment System (BBPS) is an RBI conceptualised system driven by National Payments Corporation of India (NPCI). It is a one-stop payment platform for all bills, providing an interoperable and accessible “Anytime Anywhere” bill payment service to customers across the country with certainty, reliability and safety of transactions.



Banker To Every Indian, Indeed

Raghu Mohan
The BW Businessworld
Published on July 28, 2017


Arundhati Bhattacharya, the bank’s self-effacing chairperson is the ‘Woman Business Leader of the Year’ in BW Businessworld’s edition of the ‘Most Respected Companies 2017

Few banks play such a pivotal role in a country’s economy as the State Bank of India (SBI); it’s truly a ‘Big Daddy’. At end-March, the bank’s share of systemic deposits and advances stood at 23.07 per cent and 21.16 per cent, respectively (after the merger of SBI with its associate banks and the Bharatiya Mahila Bank in the previous fiscal). And if you were to also pencil-in the share of state-run banks in this business at around 70 per cent, it makes SBI (though governed under a separate Act) very much the ‘polestar’.

No doubt that SBI has shown the way admirably. And for the same Arundhati Bhattacharya, the bank’s self-effacing chairperson is the ‘Woman Business Leader of the Year’ in BW Businessworld’s edition of the ‘Most Respected Companies 2017’. She was also conferred the ‘Lifetime Achievement Award in Banking’ in BW’s ‘Best Banks’ Survey 2017’ earlier this year. It tells you Bhattacharya is a standout both in her peer group and India Inc.

Numbers Say a Lot

A good part of SBI is legacy brings out its set of woes; the bank also helms a lot many programmes on behalf of the Centre. And, in turn, all of this — at many levels — tends to handicap the bank. What is the dread in the system as on date? Dud-loans and capital constraints. The bank’s performance shows it has tackled the plot admirably.

At end-March, operating profit grew by 17.55 per cent to Rs 50,847.90 crore; the net-profit by 5.26 per cent to Rs 10,484.10 crore after the higher provisioning requirements. The asset quality review (AQR) undertaken by Mint Road saw non-performing assets (NPAs) increase to Rs 1,12,343 crore (Rs 98,173 crore). Gross NPAs stood at 6.90 per cent (6.50 per cent), but the net-NPA ratio fell by 10 basis points (bps) to 3.71 per cent. Provisioning coverage was up 526 bps to 65.95 per cent.

You can’t also overlook the fact that capital quotes increased at a premium even as dud-loan pressure continues to hold sway. Yet it is to the credit of Bhattacharya that gross advances grew over the Rs 16,00,000-crore mark — at 7.80 per cent to Rs 16,27,273 crore. To contextualise this growth, Bhattacharya points out in the bank’s annual report for 2016-17: “The interesting part is as per the limited information available in public domain, China had injected $127 billion into their banking system during 2004-07, while the Fed (US Federal Reserve) injected $2.27 trillion following the 2008 crisis. In contrast, during the period 2006-2017, the cumulative capital infusion into state-run banks was at $17 billion.”

The other feather in the cap is the merger of SBI with its associate banks, which is the first large-scale consolidation in the Indian banking industry — State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Hyderabad, and State Bank of Patiala. The merger was particularly taxing given the state-run nature of the SBI Group— union’s sensitivities had to be handled with great care. That said, it will give SBI the much-needed heft in the face of the competition, which will arise in the near future.

With this merger, SBI has entered into the league of top 50 global banks (up from 55th position in 2016, Source: The Banker, July 2016) with a balance sheet size of Rs 33 lakh crore, with 24,017 branches and 59,263 ATMs servicing over 42 crore. The bigger balance-sheet size will enable the bank to command better terms in both international and domestic markets.

It has been a truly command performance by Bhattacharya. 



CAG punches holes in recapitalisation of PSBs

K R Srivats
The Business Line
Published on July 29, 2017


Raises doubts on banks being able to
raise Rs 1.10 lakh crore from market by 2019

New Delhi, July 28: The Comptroller and Auditor General of India (CAG) has found gaping holes in the recapitalisation of public sector banks (PSBs), stating that the recovery rate of non-performing loans was in general lower than the write-off rate between 2010-11 and 2014-15.

There is a need for the Department of Financial Services (DFS) to ensure that PSBs increase the quantum of recovery vis-à-vis write-offs, the CAG said in a report tabled in the Lok Sabha on Friday.

NPAs not recognised

The government auditor also found instances of lower recognition of NPAs (non-performing assets) and, hence, over-projection of net profits in 12 PSBs, where there was a material difference (beyond 15 per cent) between NPAs recognised by banks and those ascertained by the RBI.

Gross NPAs of PSBs have surged from Rs 2.27 lakh crore as of March 31, 2014, to Rs 6.83 lakh crore as of end-March 2017.

Although the DFS had decided that performance parameters listed in the MoUs with individual PSBs (signed in February/March 2012) would be the basis for future capital infusion, this was not adhered to in practice, the CAG said.

The CAG has recommended that an effective monitoring system be put in place to ensure fulfilment of intended objectives of capital infusion.

The Centre, as the majority shareholder, had infused Rs 1,18,724 crore of capital from 2008-09 to 2016-17 in PSBs to help meet their capital adequacy requirements or based on their performance.

The estimation of the parameters based on which capital was infused altered from year to year and often within different tranches of the same year, the CAG report said.

Also, in some cases, the rationale for distribution of the Centre’s capital among different PSBs was not on record. Some banks, which did not qualify for additional capital as per decided norms, were givencapital.

While one bank was given more capital than required, others did not receive the requisite funding to meet their capital adequacy requirements.

Against the target under Mission Indradhanush of PSBs raising Rs 1.10 lakh crore capital from the market between 2015-16 and 2018-19, only Rs 7,726 crore could be raised from January 2015 to March 2017. “Considering the commitment to the Cabinet Committee on Economic Affairs (CCEA) that the market would not be flooded by multiple banking equity issues at the same time, the achievement of this target by March 2018 appears doubtful”, the CAG report said.

Variation in targets

The report also highlighted that the target set in the MoUs (performance-linked capital infusion) varied substantially from the targets set in the Statement of Intent of the PSBs.

While 273 progress reports on MoUs were due from PSBs, only 21 were actually received, indicating deficient monitoring of the MoUs through progress reports.

The achievements against the MoU targets were also poor. The audit also noticed that the conditions that had been stipulated while sanctioning capital infusion in the PSBs (2010-11) were significantly different from the targets set in the statement of intent for the same period.



Rs 2,000 note will remain: S K Gangwar

The Asian Age
Published on July 29, 2017


Hyderabad, July 28: Minister of state for finance Santosh Kumar Gangwar has said that “there was no news of its scrapping of Rs 2,000 currency note”. However, he confirmed that the new Rs 200 note — the first of this denomination ever — will be in circulation soon. “No news that Rs 2,000 will be scrapped,” Mr Gangwar told new agency IANS in an interview.

Reports of RBI stopping the printing of Rs 2,000 notes had led to rumours of the Central government planning to a withdrawal of them.

SBI’s recalibration of its 2,000 note cassettes in its some of its ATMs to dispense Rs 500 notes also to add to speculation.

It finally gained credence after finance minister Arun Jaitley refused to deny the reports despite Opposition parties’ demand. “The reduction in printing of new Rs 2,000 notes is a separate issue. But that needs to be confirmed by the Reserve Bank of India (RBI). RBI will give information on Rs 2,000 notes,” he told the agency.

Mr Gangwar told IANS that Rs 200 note, printing of which had already begun, would be in circulation soon. The move to introduce Rs 200 note was to increase the circulation of smaller denomination notes, he added.

While an SBI Ecowrap report said that Rs 200 notes would be introduced in the coming months, a media report claimed that the new denomination could be introduced next month. The printing is already reportedly in advanced stages.



Bankruptcy Code will address
honest failures: IBBI chief

The Business Line
Published on July 29, 2017


M S Sahoo says it constitutes the
biggest economic reforms in recent years

Bengaluru, July 28: The Insolvency and Bankruptcy Code (IBC) 2016 provides the ultimate economic freedom to exit, and also a mechanism to address honest, relative failures, said MS Sahoo, Chairperson, Insolvency and Bankruptcy Board of India (IBBI).

Addressing Assocham’s national conference on ‘IBC: Protects interests of stakeholders and promotes ease of doing business’, Sahoo said: “It enables an honest firm, inclusive institution, undeterred by fear of failure to come in, get out, and thereby realising the full potential of every person.”

In the process, the Code improves ease of doing business, promotes entrepreneurship, develops corporate debt market, increases options for corporate debt financing and balances the interest of various stakeholders.

Sahoo further said that for the potential to improve and promote inclusive growth and to address key legal and economic problems — such as insufficient resources for huge needs and adequate freedom to people, subject to regulations of the market failure — the IBC constitutes the biggest economic reforms in recent years.

The IBC endeavours to prevent insolvency, if possible, and allows stakeholders to themselves take the call by providing a market-driven, time-bound mechanism for resolution of insolvency wherever possible, Sahoo said.

He added that wherever the resolution of insolvency is not possible, the Code promotes ease of exit and provides facilitators for quick and effective resolution.

“In the process, it ensures optimum utilisation of resources all the time, either by ensuring efficient utilisation within the firm through resolution of insolvency or by releasing unutilised or under-utilised resources for efficient users for closure of firms,” Sahoo explained.

He said the Code is aimed at promoting continuous 100 per cent utilisation of all resources. “This is possible, if we can somehow put all the productive resources that are currently unutilised or under-utilised... to more efficient uses, and if they can be released seamlessly from less efficient to more efficient users.

“The growth rate may well go up by few percentage points with other things remaining unchanged.”

TB Jayachandra, Karnataka Law and Parliamentary Affairs Minister, said: “The legislation is enacted to promote the ease of doing business in the corporate sector as it applies to insolvency of individuals, partnerships, firms and corporations of companies.”

He also said the IBC is aimed at promoting entrepreneurship as it provides for reorganisation and insolvency of corporates in a time-bound manner for maximising the value of their assets.



Lack of Private Sector Investment
Cripples India’s Growth

Prateek Shukla
The BW Businessworld
Published on July 28, 2017


Private investment and private savings are in a deplorable state. Last fiscal year, investment by private sector saw an abysmal rise of 5.8 per cent

Mumbai, July 28: According to latest RBI data, demand for credit by major sectors of our economy has dipped with food credit falling to Rs 40,000 crore in March 2017 from Rs 1.03 trillion in March 2016 and non-food credit getting almost half of what it was in 2015-16

Private investment and private savings are in a deplorable state. Last fiscal year, investment by private sector saw an abysmal rise of 5.8 per cent. The rate of gross domestic savings (at current prices) also fell from 34.6 per cent of gross domestic product (GDP) in 2011-12 to 32.2 per cent in 2015-16.

According to latest Reserve Bank of India (RBI) data, demand for the credit by major sectors of our economy has dipped with food credit falling to Rs 40,000 crore in March 2017 from Rs 1.03 trillion in March 2016 and non-food credit getting almost half of what it was in 2015-16. The figures highlight that industrial credit off-take has toned down and the outlook for future investments also seem insipid.

Since a large number of private firms are facing debt overhang and this debt has been financed by banks, the economy is witnessing a vicious cycle where the private sector investors are not investing and banks, particularly public sector banks are avoiding lending corporate or commercial loans. The credit off-take of medium and small enterprises which are significant contributors to the economy is also in the negative zone.

India Ratings and Research in its latest report said, ‘We now expect gross fixed capital formation for the financial year 2017 to grow at 2.0 per cent, down 306 basis points from our earlier projection’. At such time, the government should make efforts to leverage public financial institutions like India Infrastructure Finance Company to boost investment.

Jimeet Modi, CEO, SAMCO securities told BW Businessworld, “In order to boost investment in private sector, there should exist low-interest rate regime and single window project clearance mechanism which are the few hurdles still remaining. GST is already in place which earlier was the biggest hurdle to attract investments on a large scale.”

While the government’s effort to bring reform through goods and services tax needs to be praised, the Central Bank and the government must also try to better the investment atmosphere of the country. According to a report released by HSBC last year, “Public investment had been very strong last year, holding up overall investment despite a contracting private sector. The performance this year is much worse.”

Increased allocation for public infrastructure investment along with a dip in global oil prices will surely help India’s fast growth but we still need to counter challenges like the unfavorable global environment and a slow investment recovery to ensure smooth growth.



Disruptor Jio shakes existing operators

The Deccan Herald
Published on July 29, 2017


Mumbai, July 28: The Mukesh Ambani–owned Reliance Jio is surely a disruptor in the country’s telecom market, forcing the established players, including leader Bharti Airtel, to match the freebies and lucrative offerings, at the cost of their balance sheets which carried huge debt burden. Sharing the data in Parliament, Finance Minister Arun Jaitley said the banks have an exposure of Rs 97,681 crore in the telecom sector, of which Rs 63,415 crore was from the public sector banks. It clearly means any further pressure on the telecom firms would translate into a dent on the lend-ing of the banks which are already battling non-performing assets of a mammoth order. Ruing the disruption from the deep-pocketed Reliance Industries, the Bharti Airtel reported a slump of 75% in its consolidated net profit for the first quarter of the current fiscal, blaming it all on the “new operator.” The finance minister quoted State Bank of India Chairperson Arundhati Bhattacharya as saying that the stress in the telecom sector has reached “unsustainable levels.”

Telecom has been a great success story for India with over 90% tele-density while the mobile data subscribers base is expected to reach 900 million by 2022, according to a Crisil report. Most of the government’s flagship programmes like Digital India and e-governance depend heavily on a continuous success of the sector which should be allowed to work in a competitive market but must play by the rules of the game. These rules to be framed and overseen by the regulator, Telecom Regulatory Authority of India (Trai), should be fair to both the users as also the industry, which must not be made to suffer heavy government levies, requiring rationalisation in spectrum and other charges. Realising the critical importance of the sector, the government and the regulator are working on providing some kind of a relief to the operators.

While it is nobody’s case to give any extra elbow to Reliance Jio when it comes to the Trai guidelines, the existing operators must shake themselves out of a smug attitude towards customers who continue to face call drops, among other quality and billing issues. The Jio, to its credit, is reaching out to a vast unserved base of feature phone subscribers who were paying for 2G services a price of 4G, in a market that thrived on voice and exclusivity of better-off users. The biggest challenge is for the incumbent players. As regards Jio, it remains to be seen how long it can sustain the tempting offers without a red spot on the balance sheet of the parent company.



Right to privacy and Aadhaar:
Centre has done well to change argument

Editorial: The Financial Express
Published on July 29, 2017


Though two Constitution benches have, in the past, ruled that the right to privacy is not a fundamental right, it was always odd that the government continued with this line of argument at the Supreme Court, going to the extent of saying that citizens did not have an absolute right to their bodies either. The argument is correct in that suicide was treated as a crime until very recently and pregnancies cannot be terminated after a certain number of weeks. But, in this day and age, when privacy concerns have taken centre-stage the world over, and even the SC has been nuancing its views on this, the argument never sounded quite kosher. Which is why, it is good to see that, under a new Attorney General, the government has nuanced its views and tried to also focus on the need to protect data of private citizens.

While not conceding that privacy was a fundamental right, Attorney General K K Venugopal argued that while the right to privacy was a common law right, some aspects of it could get fundamental rights protection on a case-by-case basis— CCTVs in public places, to explain Venugopal’s point, cannot be banned on grounds they are a violation of the right to privacy, but the same must certainly be done for CCTVs being installed by the state in a person’s home. As he put it, “there is a fundamental right to privacy, but this is a wholly qualified right”. Citing Article 21 that protects life and personal liberty, he argued that in this case too, the Constitution allowed for them to be taken away when it said “except according to procedure established by law”.

This stance has been furthered by the government arguing that privacy and confidentiality of information gathered are non-negotiable under the Aadhaar Act. That is, while the government is within its right to collect biometrics and other personal data under Aadhaar, the information collected is to be protected under Chapter VI of the Aadhaar Act—that, presumably, has to be the concern of privacy activists. While the government did not agree with Justice Nariman’s question as to whether the Aadhaar Act’s protection of information was in fact “legislative recognition of privacy as a fundamental right”, it would do well to also tell the court that Aadhaar does not in any case have the data that many think it has.

So, when a financial transaction is done using Aadhaar, the transaction details reside with the bank, not with Aadhaar— and disclosing the transaction details violates various banking laws; the Aadhaar Act, in any case, makes disclosing of any personal details collected a cognisable offence.



Consolidation, Convergence and
Competition of Banks in India

Dr B Yerram Raju
The Moneylife Online
Published on July 28, 2017


Cooperative banking, suffering from weak governance, poor legal framework, dual regulation and excessive politicisation is in search of sustainable solutions and the consolidation move in three states highlighted by Bloomberg in its article a few days ago is perhaps the right move. Following the recommendations of the Vyas Committee (2005), the National Bank for Agriculture and Rural Development (NABARD) amalgamated 196 regional rural banks (RRBs), established under the multi-agency approach to rural lending in the country during a 15-year period till 1990, into 64 banks by 2013. This amalgamation has met with only partial success as the RRBs are still far from achieving the objectives for which they were created in 1975.

The 10 years between 1991 and 2001 saw bank disintermediation in the wake of financial liberalisation, prudential norms and profitability focus. The directed credit programme was blamed for rising non-performing assets (NPAs) till then. Dr YV Reddy says in his latest book, Advice and Dissent, “The seeds for bad times are always sown in good times.” 2003 was the year of ‘crazy credit’ that took the route of corporate debt restructurings (CDRs) in 2010 and 2011. This grew to reach the unsustainable level of around Rs8 lakh crore. Lazy banking had set in.

In 2005, there was a call for financial literacy, financial inclusion and financial stability. This saw the banks’ boards committing to rural expansion, and routing financial inclusion through business correspondents. In the wake of shrinking supply of credit to needy sectors, such as micro and small enterprises, 2015 saw the emergence of small finance banks and payment banks to meet the increasing demand.

Public sector banks (PSB), constituting 73% of banking in India, were in the eye of the storm of ever rising NPAs, notwithstanding the legal facilitation through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The Insolvency and Bankruptcy Code (ICB) was brought into effect to tame the alarming situation. The rising capital adequacy compliance requirement under Basel III by April 2018 and the global financial stability, backed by the forgotten Narasimham Committee (1991) Report, seemed to push for P Chidambaram’s call for consolidation, convergence and competition.

Viral Acharya, Deputy Governor of Reserve Bank of India (RBI) argued for a public-private partnership (PPP) model for better organising and managing government-sponsored enterprises. Strangely, Mr Acharya batted for the merger of associated banks with State Bank of India (SBI) to form a bank of global size. Now, the demand is for creating some more mergers in the PSBs, notwithstanding the fact that 10 of them are on a watch list. Within the country, there is stunning example of small banks in the private sector performing better than their senior peers.

Whose call is this for mergers? Does it benefit customers? Does the size of the balance sheets provide leverage for responsible credit flow? Does it improve the technological prowess of the merged banks to offer affordable charges and more services to customers than now? Will these mergers take the banks to better rating in spite of the bloating NPAs? Will these banks be enabled to have more private participation in governance? Why is the Reserve Bank of India (RBI) not prepared to go out of the boards of PSBs? Has the recent demonetisation led to improving the image of the banks? The answers to all these will be disappointing.

The voice of SBI initially to wait and watch for the merger was silenced successfully by the owner, the government. Three months down the line, migration of accounts to the main platform is slow. Issues remain with human resources (HR). Poor management of loan accounts are hitting several retail and small enterprise borrowers. Managers are in agony.

Former Governor Dr Raghuram Rajan’s warning in 2016 that the merger move is risky without cleaning up the beleaguered banks’ balance sheets fell on deaf ears in the Finance Ministry. The Ministry’s red carpet treatment to multi-national asset reconstruction companies (ARCs), providing scope for sale of distressed assets, proved a failure. In the wake of global recession, even Robert Koenig called for breaking up mega banks in the interest of global financial stability.

The Indian Government did not seem to have learnt lessons from the 38 mergers that occurred before the SBI merger. The SBI Chairman, Arundhati Bhattacharya, was on record recently to say that the NPA position worsened post-merger. It would take considerable time to settle down. Anyway, she will step down shortly and the heat will be on the successor. It is not size that is the solution to the problems as much as good governance and the government maintaining arm’s length distance from the governance and management of PSBs. Bank Board Bureau and Gyan Sangam’s recommendations have thus far not proved effective.

Even among the PSBs, there are banks with regional flavour where the customer loyalties are still contributing to their image and this will for sure take a beating if they allow some weak banks to join them at the behest of the government.

I argued this in my earlier column (‘Why consolidation of Indian banks is no cure to the ills’). It is also important that the big banks be more humble and learn their lessons, instead of becoming unwieldy conglomerates. Banking basics and customer service cannot be compromised. Government would do well to restart Development Banks to fund infrastructure projects and relieve PSBs from this responsibility, as experience has amply demonstrated that they are not cut out for that job due to their funding of long-term projects with short-term resources.

The recent regulation restricting exposure to a single corporate to Rs500 crore in any bank is well thought out and should restore credibility once the IBC hopefully gives a reprieve to the beleaguered PSBs. Government would do well to listen to sane advice and put further mergers on the backburner until the results of the SBI merger are out, maybe in a couple of years.

(Dr B Yerram Raju is an economist and risk management
specialist with three decades of banking experience.)



Minimum Wages Code set to end
disparity in salaries; know how

Surya Sarathi Ray
The Financial Express
Published on July 29, 2017


The government is likely to do away with the existing concept of scheduled employments under the Code on Wages, a move that will extend the benefit of obligatory minimum wages to all workers.

The government is likely to do away with the existing concept of scheduled employments under the Code on Wages, a move that will extend the benefit of obligatory minimum wages to all workers. Currently, minimum wages set by governments are applicable to only those who work in sectors employing 1,000 or more in the state concerned. Such scheduled sectors include 45 notified by the Centre and 1,709 listed by the state governments. Official sources said that the removal of restrictive criteria will help in bringing parity of wages among workers in different industries apart form universalising the principle of minimum wage. The proposed code, which will subsume four existing central labour legislations — The Minimum Wages Act, 1948, The Payment of Wages Act, 1936, The Payment of Bonus Act, 1965 and The Equal Remuneration Act, 1976 — will have a provision for setting up a committee which will set and revise the minimum wages from time to time. A source in the labour ministry said even for short duration of work, minimum wages will be applied and in such cases, it will be calculated on hourly basis.

The minimum wages for one unskilled agriculture labourer in the central sphere is Rs 300 per day while an unskilled person working in the non-agriculture sector is entitled to get Rs 350 a day. The minimum wages is calculated on the basis of the workers’ daily consumption pattern (on the basis of field studies), taking into consideration the minimum 2,700 K cal requirement for a family of three. The requirement of 72 meters of cloth per year, fuel, lighting, education and medical need and old age needs of the worker is also taken into consideration.

In the code on wages, the government is also doing away with the variation in minimum wages from sector to sector. The entire working population will be categorised on the basis of their skills and not sector-wise. The minimum wages in the states vary from state to state and in most of the cases is much lower than by the central sector. To bridge the gap and tide over its helplessness — as labour is in the concurrent list — the centre introduced the concept of a national floor level minimum wages (NFLMW) in 1991, but that also failed to make any cut since it is only suggestive in nature and has no statutory backing. The NFLMW now stands at Rs 176 per day.

Labour ministry sources said with the passage of labour code on wages, which might take more than six months since the Bill is likely to be referred to a select committee after tabling in Parliament next week, the provision of the NFLMW will be subsumed and the ingredients of calculating minimum wage at present will also be changed. The ingredients in the basket for calculating minimum wages in future are not known, but even if the proposed committee uses the present NFLMW, which is considered bare minimum, it will push the cost of labour. This will not only affect competitiveness of trade and industry, but also hit the ability of states to attract investments on the basis of lower wage rates.

The passage of the Code on Wages will be the first among the four the present dispensation has been looking at to unleash its long-pending labour reform initiative by amalgamating 44 existing labour Acts into four codes — on wages, industrial relations, social security & safety and health & working conditions.


  
Getting a measure of corporate governance

U D Choubey
The Business Line
Published on July 29, 2017


Robust, quantifiable governance norms will enhance the
Process itself while raising market valuation and credit prospects

Evaluation and accreditation of achievement of corporate governance in an enterprise is a critical issue today. But there is no well-recognised accreditation model to evaluate this in different enterprises.

Corporate governance has become a movement across the globe. There is fresh thinking at Board level to arrive at new institutional mechanism, codes and standards, strategy formulation and its execution. Any accreditation and evaluation of corporate governance would require objective oriented criteria to finally decide the rating of the enterprise.

Corporate governance rests on four fundamental cornerstones: fairness, transparency, accountability and responsibility. Ethics are essential as they extend beyond corporate law. No singular model of governance is being adopted all over the world. Different countries have different models of corporate governance and rightly so as cultures, traditions, legal structures and ownership structures vary from country to country. Yet the four core principles have been influential in setting of the Code of Governance across the globe. The accreditation model will also have some difference from country to country even though overall evaluation may have similar criteria.

There has been a piecemeal approach towards performance evaluation so far. The memorandum of understanding (MoU) has been a good model but it is limited to target orientation; companies opt more for achieving targets but that sometimes leaves the vision and strategy behind. MoU is nothing but some sort of agreement between government and the enterprise to achieve or exceed the target set forth for financial and non-financial performance such as CSR, environment protection, digitalisation, employees and gender issues. It is also providing a way for performance related pay for employees. MoU may not be taken as complete evaluation model. A foolproof accreditation model is the only way to judge the overall governance. A robust mechanism would be required for rating the enterprise in terms of their performance of corporate governance.

Why accreditation?

Companies often are not able to benchmark themselves on their corporate governance standards, and as a result they are unable to improvise on their existing practices. This is where Peter Drucker’s wrote “...if you can’t measure it, you can’t improve it”. Hence, it is important that an accreditation tool is developed so that corporate governance status of a company can be measured fully and improved upon. Accreditation would also provide a standardised and systematic way to analyse governance across firms operating in different sectors. This has become an essential aspect to improve against benchmarks.

This would also help regulators monitor corporate governance levels of companies and pave the way for reforms as it would assist in identifying strengths and weaknesses in governance practices. At the same time it would incentivise the company to compete and improve their brand.

An objective measurement of observance of corporate governance norms would help in developing benchmarks, thereby promoting better adherence to corporate governance norms. This, being a continuous process, would also help organisations to analyse their progress over time and help them to identify with the best observed corporate governance practices across the country/globe. A high accreditation rating on corporate governance would add positively to the overall credit rating of the organisation, thereby making the company more investor friendly and also in form of better credit worthiness. It has been observed that companies with higher credit ratings or quality standards ratings have a better brand image.

Similarly, a higher accreditation for corporate governance will improve the market valuation of the company. Accreditation incentivises companies in adopting improved corporate governance practices. The tools for accreditation would give stakeholders a uniform tool for measurement across portfolios, schemes and competitive scripts. Also, accreditation would help the lenders to make informed lending decisions.

Framing accreditation model

The accreditation framework should be based on the four pillars of corporate governance i.e. Fairness, Transparency, Accountability and Responsibility. There shall be multiple micro parameters such as how much customers are delighted, which would be measured by their satisfaction with respect to quality of the product, service quality/ response time and after sale service.

Similarly, there would be multiple parameters to each micro aspect of satisfied suppliers, willing investors, trusted employees, happy creditors, assured government, rich society, unified community and protected environment.

Therefore, it would be best if the accreditation process adopts the OECD principles of corporate governance — ensuring rights of shareholders and key ownership functions and equitable treatment of shareholders, including minority shareholders. This should also include disclosure, transparency and responsibilities of the Board.

In addition to the above principles, accreditation should be progressive and not aim at achieving minimum standards. The process should be comprehensive in coverage and aim at covering all stakeholders. Also, it should be objective, measurable and universal so as to be applied across all sectors and industries along with ability to identify gaps in corporate governance practices. Lastly, it should be extensive and attain highest quality of assurance processes so as to ensure independence and reliability in assessment.

It is essential that the questions should cover all aspects of corporate governance. Once the parameters are developed, the next step would be to develop the marking system i.e. how much weight should each question carry so as to arrive at the final scoring.

Last but not the least, the system of accreditation should be made mandatory to all companies, else the entire reason for developing the tool would be lost. Initially, it should be made mandatory for all listed companies and companies proposing to list their scripts. Further, it could be a vital parameter in obtaining corporate rating for the company and its scripts.

The above model is only suggestive as developing a system for accreditation would require substantial efforts.

The writer is Director General, SCOPE and member of
the Uday Kotak Committee on corporate governance.















 Source: Internet News papers and Anupsen articles
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Banking News Dated 28 July 2017

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Banking News: July 28, 2017


Banks' exposure to telecom sector at
Rs 97,681 crore 'highly unsustainable': Jaitley

The Press Trust of India
Published on July 26, 2017


New Delhi, July 26 (PTI): Finance Minister Arun Jaitley on Tuesday said banks have an exposure of Rs 97,681 crore in the telecom sector, which is grappling with financial stress.

In a written reply to the Rajya Sabha, Jaitley said State Bank of India (SBI) Chairman has pointed out that stress in the telecom sector has reached "highly unsustainable levels" due to erosion of topline and earnings of the service providers.

Quoting the Reserve Bank of India figure, Jaitley said total outstanding (funded) advances by public sector banks to the 'communications' sector stood at Rs 63,415 crore, while total exposure to the sector worked out to be Rs 97,681 crore. 'Communications' sector include, telecom - fixed network; telecom towers; telecommunications and telecom services.

For public sector banks, the gross Non Performing Asset (NPA) ratio and stressed advances ratio for the sector stood at 3.68 percent and 11.29 percent respectively, at the end of 2016-17 fiscal.

Jaitley further said the SBI Chairman (Arundhati Bhattacharya) has made certain recommendations for tackling stress in the sector. The suggestions, include aligning deferred payment liabilities for spectrum for its life, rationalisation of regulatory charges, quick resolution of litigation on definition of adjusted gross revenues, easing regulation of merger and acquisition.

"Government has already constituted an Inter-Ministerial Group for the sector," the financed minister said.

At present, a portion of spectrum auction amount is taken as upfront payment by Department of Telecommunication, and the rest after a two-year moratorium is paid out every year in 10 instalments.

The Indian telecom industry is locked in an intense tariff war following the entry of Reliance Jio.



Big financial blow for NPA-laden banks on cards
as RBI unlikely to ease provisioning load

Saloni Shukla & Sangita Mehta
The Economic Times
Published on July 27, 2017


Mumbai, July 27: Banks hoping to escape steep provisions on loans referred to bankruptcy court, apart from the 12 companies that the Reserve Bank of India (RBI) recently mandated for the insolvency process, are set to be disappointed.

The central bank will soon direct lenders to set aside 50% of bad debt as soon as a referral happens, and 100% if the tribunal orders liquidation, taking a heavy toll on finances already marred by provisioning requirements on non-performing assets (NPAs).
“Provisioning requirement would be uniform for all cases going to NCLT (National Company Law Tribunal) because the principle is the same,” said a senior RBI official involved in drafting the regulation.

“It is clear that these 12 accounts need provisioning and for the remaining accounts banks have been given time. Banks already have certain tools and each tool has its provisioning requirement.”

Most banks had interpreted an RBI communication on higher provisioning that referred to the “said” companies as applying only to the dozen entities. This note had been sent about 10 days after RBI’s June 13 letter on the 12 companies. RBI did not respond to an email sent by ET.

SBI chairman Arundhati Bhattacharya had said in an interview earlier this month that banks were awaiting more clarity on provisioning norms for accounts referred to NCLT.

“Provisioning requirements at this point of time is only for the 12 accounts,” Bhattacharya had said. “For the rest of the things, RBI has not come out with anything yet. We will see what provisioning rules they come out with and then take a call.”

Bank earnings have been savaged in past quarters following an RBI-mandated asset-quality review aimed at recognising bad debt.

Higher provisioning across the board will further dent those numbers.

Current provisioning norms vary widely based on the sector and tenure. While 148 companies have been admitted to the NCLT process, banks had factored in provisions only for the 12 accounts.

India Ratings had estimated that additional provisions for the 12 companies could be as high as Rs 18,000 crore. Rating agency Crisil had projected a hit of Rs 2.4 lakh crore if banks have to write off 60% of the value of bad loans for the top 50 defaulters.

RBI has given banks three quarters to set aside provisions on cases referred to NCLT.

The 50 stressed companies, which account for Rs 4 lakh crore in soured loans, are largely from the metals, construction and power industries and accounted for about half the total NPAs in the banking sector as of March 31. The banking industry has been struggling with bad debt of more than Rs 7.3 lakh crore, or 9.6% of total loans.

RBI told banks on June 13 to initiate insolvency proceedings against 12 companies — Bhushan Steel, Lanco Infra, Essar Steel, Bhushan Power, Alok Industries, Amtek Auto, Monnet Ispat, Electrosteel Steels, Era Infra, Jaypee Infratech, ABG Shipyard and Jyoti Structures.



SS Mundra says firms free to move higher courts

The Free Press Journal
Published on July 27, 2017


Mumbai, July 27: With some large stressed firms challenging RBI’s directives to banks to initiate proceedings against them under the Insolvency and Bankruptcy Code (IBC) in high courts, Reserve Bank deputy governor SS Mundra on Wednesday said nobody can be prevented from approaching the judiciary.

Last week, the Gujarat High Court had dismissed Essar Steel’s plea against RBI to start insolvency proceedings against it.

The court refused to grant any relief to the steel major on proceedings initiated against it by the State Bank of India and Standard Chartered Bank at National Company Law Tribunal (NCLT) under the IBC, indicating that all issues raised by the company should be considered by the NCLT.

“Freedom of speech is a fundamental right and approaching the higher judiciary is open to everyone,” Mundra told on the sidelines of a Canara Bank function.

“If an individual company chooses to use that route, I don’t think that can be prevented, but I am sure that in any judicial system past pronouncements create a kind of future direction and that direction has now become evidently clear,” he said.

Essar Steel had moved the high court seeking the court’s direction to quash and set aside RBI’s direction to the banks to initiate insolvency proceedings against the company through a release dated June 13.     

The RBI had last month identified 12 accounts (companies) for insolvency proceedings with each of them having over Rs 5,000 crore of outstanding loans, accounting for 25 per cent of the total NPAs of banks. The steel company’s debt has increased to over Rs 42,000 crore.



Reserve Bank of India extends
'rest' period for auditors to 6 years

Anup Roy
The Business Standard
Published on July 28, 2017


Mumbai, July 27: The Reserve Bank of India (RBI) on Thursday criticised private and foreign banks for appointing the same set of auditors alternatively after mandatory rest of two years, as such practice establishes a “comfortable relationship that may lead to compromise in strict adherence to audit principles.”

As per the extant rules, a statutory auditor has to be appointed for a period of four years and then there should be a rest of two years. Now the central bank extended the rest period to at least six years.

According to RBI, in some cases in private and foreign banks, the same audit firm was reappointed after a gap of two years’ rest. In a few other banks, the immediately preceding statutory auditor firm was appointed on completion of the four-year tenure of the current statutory auditor.

“The statutory central audit responsibility in such banks thus remained confined to two audit firms which were appointed on a cyclical basis,” said RBI in a notification on its website.

Criticising these banks, the central bank said the rest and rotation policy in the appointment of auditors have been mandated so that books are looked at afresh, “as a new team is likely to examine the issues in a bank from a different perspective.”

RBI bars banks from appointing same auditors frequently

In order to make the banks follow the policy in letter and spirit, the central bank said that an auditor, after completion of its four-year tenure in a bank “will not be eligible for appointment as SCA of the same bank for a period of six years.”

The central bank’s directive assumes importance in the light of wide divergence found in the books of some private sector banks, which reported much lower NPA in their books for FY 16 than what the central bank auditors later found. If the divergence found is more than 15 per cent from RBI’s perspective, it is now mandatory than banks disclose the information in the annual report.



$191 billion and counting:
Enormous bad debt burden is
splitting India's banks in 4 ways

Andy Mukherjee
The Economic Times
Published on July 28, 2017


When Moody's Investors Service polled market participants in Hong Kong recently, 70 percent picked India's banking system as the most vulnerable among seven countries in South and Southeast Asia. I wonder what the remaining 30 percent were smoking.

As another earnings season rolls on, the weaknesses of Indian lenders -- depleted capital levels in state-run banks and an inability to shed soured corporate debt even in non-state-controlled ones -- are once again obvious. What's not as apparent, though, is an quadrifurcation of Indian banking.

Axis Bank bad loans: $3.4 billion

Axis Bank Ltd., one of the embattled lenders from the second category, dropped almost 3 percent on Wednesday after it reported a $546 million addition to its non-performing assets in the June quarter. Were it not for an unusually large write-off of $380 million of hopeless debt, fresh slippages would have made the bank's $3.4 billion bad loan pile even bigger.

That's just the reported non-performing assets, which now comprise 5 percent of Axis Bank's loan book. Loans on the bank's internal watch list, plus accounts that have been restructured, mean another 4.1 percent of the book is stressed, according to Nirmal Bang Institutional Equities.

Worse, for the fourth straight quarter, more than half of the lender's operating profit was spent on making provisions. An investor who had only seen a graph of provisions at Axis between 2006 and 2015 would have expected such haemorrhaging of profit to never occur.

Some corporate lenders, though, are faring better. Yes Bank Ltd., which spooked the market three months ago when it was forced by the regulator to disclose a chunky bad loan to an infrastructure firm, has managed to recover 60 percent of that money. Bad loans at Yes are down to less than 1 percent of the total, the lender announced Wednesday.

The contrast in performance of Axis and Yes shows bankers can't shift the blame to things they can't control, such as a multiyear funk in corporate profitability that has made Indian borrowers' capacity to service debt the worst in Asia. A quarter of the loan book at Yes is exposed to what the lender describes as sensitive: power; iron and steel; engineering; and telecoms. Yet, Yes is boxing on, while Axis is boxed in.

The bank that's leaving both Axis and Yes -- and everyone else -- behind is HDFC Bank Ltd. The retail-focused lender took a knock in the June quarter because of the distress in farm markets triggered by New Delhi's decision in November to outlaw most of the bank notes in circulation. As politicians rushed to announce waivers of agricultural advances, farmers strategically defaulted on their obligations.

While that pushed up HDFC Bank's bad-loan ratio to 1.24 percent, Managing Director Aditya Puri paid the higher credit costs and still delivered a net interest margin of 4.4 percent in the June quarter, beating Yes Bank's 3.7 percent and Axis's 3.3 percent.

India's banking industry is splitting four ways. State-run lenders, as well as Axis, will remain in the doghouse for at least a couple more years. HDFC Bank will steal their best corporate clients and add them to its formidable retail franchise.

Lenders like Yes and IndusInd Bank Ltd. fall somewhere in-between. They have few constraints on growth, but managing their existing exposure to large firms with weak profitability will be taxing.

The real opportunity lies in bite-sized loans. This prize, however, might go to specialists like Au Small Finance Bank Ltd., which went public earlier this month. Bernstein analyst Gautam Chhugani expects Au to quadruple its loan book in five years, mainly by lending to tiny businesses that have never had any access to finance.

The gloomy sentiment captured by the Moody's poll is still the biggest drag on Indian banking because of the sheer size of bad debt: $191 billion and counting. But for investors placing longer-term bets, it's the other three corners of the industry that deserve more attention.



Indian banks are most at risk in
South and SE Asia, Moody's says

The Zee Business News
Published on July 26, 2017


Ø      Indian banks most vulnerable in South and Southeast Asia

Ø      Moody's says result from a poll in Hong Kong and Singapore

Ø       Indian banks are under-funded, the poll said

Mumbai, July 26: Global ratings agency Moody's on Wednesday said that Indian banks remain most at risk in South and Southeast Asia. The agency has revised the outlook on several Indian banks to stable or negative from positive on 24 July, signalling a lowering in potential government support under our Joint-Default Analysis (JDA) model, and/or weaknesses in solvency metrics.

Moodys's said, "We agree that many banks in India remain undercapitalised and continue to lack sufficient loan-loss provisions. Moreover, the government has appeared reluctant to increase capital injections into the public sector banks, despite the limited ability of these banks to access equity markets for much-needed capital."

Moody's said that the results were a finding of a poll it conducted of market participants in Hong Kong and Singapore.

"Moody's itself is also of the same opinion and we had revised our outlook for APAC banks to stable from negative in early July to reflect easing risks to banks' asset quality as macroeconomic conditions turn mildly positive in the region and commodity prices broadly stabilize," says Eugene Tarzimanov, a Moody's Vice President and Senior Credit Officer.

On India, the poll said, "Near 70% of the respondents in Hong Kong picked India's banking system as the most vulnerable among seven systems in South and Southeast Asia. In Singapore, 44% of the respondents chose India and a quarter of the votes went to Indonesia."

"We agree that many banks in India remain under-capitalized and continue to lack sufficient loan-loss provisions. Moreover, the government has appeared reluctant to increase capital injections into the public sector banks, despite the limited ability of these banks to access equity markets for much-needed capital," says Tarzimanov.

As a result, Moody's had revised the outlook on several Indian banks to stable or negative from positive on 24 July, signalling a lowering in potential government support, and/or weaknesses in solvency metrics.



Is there a plan to scrap
 the Rs. 2,000 note?

The Press Trust of India
Published on July 26, 2017


New Delhi, July 26 (PTI): The Opposition in the Rajya Sabha asked Finance Minister Arun Jaitley to clarify whether the government has decided to scrap the newly launched Rs. 2,000 note and introduce a Rs. 1,000 coin. However, Jaitley who was present in the House, did not respond even as the Opposition members insisted for clarification from him on the issue.

Raising a point of order during the Zero Hour, Samajwadi Party’s Naresh Agrawal said, “The government has taken a decision to scrap the Rs. 2,000 note. The RBI has been given orders not to print the Rs. 2,000 notes ... If any policy decision has been taken during the Parliament Session, the tradition is to announce it in the House.”

So far, the RBI has printed 3.2 lakh crore pieces of Rs. 2,000 notes. Agarwal said that the RBI has stopped printing of these notes. “One note ban has been done, the second one is being planned,” he noted. He alleged that the earlier note ban decision was taken by the government and not the RBI. “The RBI board had opposed it but the government took the decision. The earlier decision (of demonetisation) was taken by the government, the second one is also from the government,” he said.

Echoing his views, the Leader of Opposition Ghulam Nabi Azad too sought clarification from the government on whether it was planning to introduce Rs. 1,000 coins.“Every day we read about coins of 1,000, 100 and 200. What is the actual status? Are we to go by what media is writing? The House is to be enlightened by the Finance Minister. What is the truth?,” he asked.

Adding that there was no politics in this issue, he asked, “Are we going to have coin of Rs. 1,000? To carry coins, we have to purchase a bag. We must know. Our sisters have the purse. We shall also have to buy purse just to carry the coins of Rs. 1,000.”
Another member from the Opposition, Tiruchi Siva (DMK) said he cannot dispense with the media reports completely and sought clarification from the government on the issue. Sharad Yadav (JD-U) said the issue was serious as the rumours are strong. He wanted the government to clarify and stop the rumours, warning the government that the people will start returning the Rs. 2,000 notes.



Is India prepared for demonetisation 2.0?

The DailyO Online
Published on July 27, 2017


Demonetisation 2.0? That might happen soon. Phasing out the
Rs 2,000 note makes sense, but it should be done with caution.

Mumbai, July 27: According to reports, the Reserve Bank of India has stopped printing the Rs 2,000 currency notes altogether and will not be bringing in new notes in the current financial year. The last few weeks saw a shortage of Rs 2,000 notes. Many attribute this scarcity to cash-hoarding, given that it is easier to hoard black money in Rs 2,000 notes as compared to other denominations. But is that all?

If the government really plans to go ahead with a demonetisation drive once again, there are several things it should do, in order to avoid the chaos that the November 8, 2016 announcement caused.

1) First of all, the government should definitely not scrap both the high-value denominations. A lack of Rs 2,000 notes is something the people may be able to survive, but the absence of both notes (Rs 2,000 and Rs 500) will be tough for everyone. A section of the population may be better prepared for another wave of cashlessness, but a huge chunk still isn’t.

An RTI enquiry has revealed that the Pradhan Mantri Jan Dhan Yojna has 28.9 crore bank accounts as of July 14. According to an ICE 360° survey from December, 2016, covering 61,000 households 99 per cent of households in both rural and urban India have at least one member with a bank account.

But that still does not change the fact that digitisation of currency will not affect people. A bank account neither guarantees availability of accessible branches or ATMs, nor does it account for the section of people unable to use internet banking, mobile wallets and debit cards because of nonexistent infrastructure.

2) The RBI should have a new currency ready to minimise damage caused by cashlessness. A lot of problems emerged during the first wave of demonetisation and the unpreparedness was one of them. Notes were not being reprinted fast enough, bank ATMs did not have the hardware to carry the new notes and haphazard notifications from the central bank did not help any.

It is more than evident that black money cannot be flushed out by demonetising notes. In fact, a month into the drive, huge chunks of black money caught by the Income Tax department and the Enforcement Directorate were found to be in the new currency. Additionally, the central bank is yet to give us a figure on how much of India’s estimated cash currency (in Rs 500 and Rs 1,000 notes) have been deposited.

3) There have to be stricter laws about the use of demonetised currency for emergency services. Hospitals, petrol pumps, ration stores and pharmacies should be allowed to use demonetised notes, in case the cash shortage becomes a problem. Too many lives were lost due to mismanagement last time. The government should exercise all forms of caution this time.

The Centre is fairly unpredictable. We don't know what they can or will do. But we can speculate. And in terms of a second wave of demonetisation, the signs are abundant.

Economic Times reported that there is talk of this in Parliament as well. The Opposition on Wednesday, July 26, in Rajya Sabha asked finance minister Arun Jaitley to clarify whether the government has decided to scrap the newly launched Rs 2,000 note. Jaitley, however, did not respond.

Another report says that State Bank of India (SBI) - the country’s biggest bank - has started recalibrating the Rs 2,000 currency cassettes in a few of its ATMs to Rs 500 currency ones so that more cash can be stuffed inside the machines.

A few months ago, The Statesman reported that in order to curb fresh generation of black money, the government is preparing to gradually phase out the Rs 2,000 note. An official was quoted saying: "The idea behind introduction of the high denomination Rs 2,000 notes was to quickly remonetise the economy with the value in circulation.”

It was a stop-gap arrangement and now there is enough currency and hence the note should be given the marching orders.

A Mint report quotes an anonymous source (who is aware of the inner workings of the Reserve Bank of India), according to whom, about 3.7 billion Rs 2000 notes amounting to Rs 7.4 trillion had already been printed, when the printing process was allegedly stopped five months ago. The report also adds that RBI’s printing press in Mysuru has started printing the new Rs 200 notes, which are likely to come into circulation by August.

“Initially, around a billion Rs 200 notes are expected to hit the market,” revealed the source.

Phasing out the Rs 2,000 note makes sense. It is too huge a denomination, especially when the next biggest denomination is Rs 1,500 away. But there has to be a proper way of doing it. India managed to survive a mindless move once. The country is now stronger and will probably withstand another.

But does it still make sense to subject the population to yet another mismanaged demonetisation drive? No.



Rs 2,000 note ban unlikely, say bankers

The Daily News & Analysis
Published on July 27, 2017


They say the government and the RBI may
be rebalancing the supply of the currency

Mumbai, July 27: The government on Wednesday was tight-lipped on whether the Rs 2,000 denominated notes were going to be demonetised. Despite repeated questioning from the opposition, finance minister Arun Jaitley preferred to ignore the questions and refused to be drawn into a discussion.

Bankers say that it is unlikely that the government would demonetise the high-value currency. They say the government and the Reserve Bank of India (RBI) may be rebalancing the supply of the currency. Initially, the government was printing more of Rs 2,000-denominated notes and is going slow now.

Bankers say that the fresh supply of Rs 2,000 denominated notes from RBI is gradually going down and fresh supplies of Rs 500 notes are taking place as the central bank tries to increase lower-denominated currency notes.

A senior banker said, "There are sufficient supplies of Rs 500 and Rs 100 but lower denominations are little scarce. The bulk of the notes we are receiving is the Rs 500 denominations."

RBI data shows that currency in circulation stood at Rs 15.22 trillion (lakh crore) as on July 14, eight months after demonetisation. This is about 86% of the Rs 17.7 lakh crore that was in circulation on November 4.

However, bankers said, "There may not be a plan to demonetise the Rs 2,000 notes. They may be trying to rebalance the supplies. Initially, it was the Rs 2,000 notes that were getting printed to replenish the demonetised stock of currency. Now they may be going back to lower currency. "

Naresh Agrawal, a Samajwadi Party MP, said in the Parliament on Wednesday, "The government has taken a decision to scrap Rs 2,000 note. The RBI has been given order not to print the Rs 2,000 notes. If any policy decision been taken during the parliament session, the tradition is to announce it in the House," he said.

"So far, the RBI has printed 3.2 lakh crore pieces of Rs 2,000 notes. And now, it has stopped printing. RBI cannot bully. One note ban has been done, the second one is being planned. Let the finance minister reply," he added. But the finance minister chose not to respond.



There's One Good Reason
India Shouldn't Cut Rates

Mihir Sharma
The Bloomberg View
Published on July 28, 2017


Mumbai, July 28 (Bloomberg View): When the committee that sets monetary policy for India’s central bank meets early next month, their decision should be clear. There are plenty of good reasons for them to cut rates. Still, there’s one even better reason to hold off.

Since the committee last conferred two months ago, inflation has steadily declined. Food is cheaper now and overall consumer price inflation stands at less than 2 percent. That’s below the Reserve Bank of India’s target zone, which gives the bank more than enough space to loosen policy.

And economic conditions would seem to cry out for lower rates. Growth has slowed for four consecutive quarters, with the last print coming in at a far-from-respectable (for India) 6.1 percent. While the International Monetary Fund predicts India will grow at 7.2 percent, its most recent estimates have tended to be high.

It’s unclear what more the government-- which in 2015 was promising to deliver double-digit growth but has now discovered how “difficult” that task is-- can do to revive the economy. The real problem is that the private sector remains unusually unwilling to invest. Investment as a proportion of gross domestic product needs to rise by several percentage points if India is to return to its previous levels of growth or to match China’s high-growth takeoff. The textbook advice is clear: To increase investment, lower the cost of capital.

But things never work quite that simply in India. For one, there’s no reason to suppose that a cut in the policy rate by the RBI would lead to entrepreneurs actually gaining access to cheaper capital. Both the current governor, Urjit Patel, and his predecessor, Raghuram Rajan, often complained that banks simply refused to pass on lower rates to their customers. Partly that’s because competition doesn’t quite work in the Indian banking sector, which is largely state-owned; partly it’s because most banks are struggling with bad loans. They’re feeling particularly cautious about new lending.

Even if that hurdle can be surmounted, there’s another, deeper reason why the RBI should consider holding off. Now that the minutes of the monetary policy committee’s June meeting are available, one intriguing passage stands out. The central bank’s deputy governor, the economist Viral Acharya, apparently answering a suggestion that easier monetary policy would help stressed banks recapitalise, correctly points out that would be a terrible idea: “It is best for the sake of policy credibility to not mix instruments with objectives they are not meant to target.”

His argument against thinking of easier money as a tool to fix banks holds as an argument against a rate cut in general. “This would relax the pressure,” Acharya argues, “on good efforts that are underway … to improve the banking architecture.” In other words, if thrown a lifeline now, banks will have less of an incentive to clean up their books.

The same logic applies to India's most indebted and badly managed firms. The economy has reached a crucial point, where owners and operators of companies are finally coming face-to-face with the consequences of a decade of bad choices. If markets are to work properly, this is the moment when those executives should lose control of the companies they’ve mishandled. Only then can the system be flushed and capital allocated to more productive and innovative enterprises.

If allowed to raise more cash, on the other hand, these companies will simply stay in the game until the economy as a whole recovers and all is forgiven. Holding off on a rate cut might delay that recovery. But at least it would help ensure an infusion of new blood and credibility.

Policymakers in China face a very similar dilemma. Everyone there admits that the economy needs a shakedown that reduces excess capacity, cleans up ownership and helps China face the future. But the temptation to keep extending credit-- just for another quarter, just till political problems sort themselves out, just till the economy turns up on its own -- is overwhelming.

Both of Asia’s giants face something of a reckoning, in which their long-term needs clash with their short-term interests. China appears to have made its choice, for now. India might want to think twice before making the same one. 

Mihir Sharma is a Bloomberg View columnist. He was a columnist for the Indian Express and the Business Standard, and he is the author of “Restart: The Last Chance for the Indian Economy.”







 








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