The Reforms I Expect in India - Banking Reforms

[Guest guest]

The Reforms I Expect in India – Banking Reforms

 

When I thought of writing on “Banking Reforms” I only thought of the apex bank

– the controlling bank, Reserve Bank of India. It is not only a controlling

bank, but also a friend, philosopher and guide to the Nation and also to the

Banking Industry. As a parent organization, the failures in the banking industry

are to be necessarily to be owned by it.

 

In the recent past several banks in the cooperative sectors failed utterly and

the depositors are virtually standing on the roads – for the simplest mistake

they did – they trusted the Deposit Insurance and Credit Guarantee Corporation

which is at the nose of RBI and which assures payment of a lakh of rupees in the

event of any bank failure. I really wonder as to why the RBI could not realize

and understand that a depositor is the back bone of any bank.

 

Safeguarding their interest is of utmost primary importance for the survival of

any bank. Unfortunately creditors are well protected than the depositors.

 

The depositors provide the financial strength to any bank to lend and make

profits. I do not understand why DICGC or RBI fail to arrange for payment of

a lakh of rupees maximum guaranteed amount to the deposits when once any bank

fails. What is the fun of the depositors going round the creditors with whom

they have no absolute concern. This really happened in many cases. Time to

time monitoring of the credit portfolio of any bank, conducting audits, making

enquiries, obtaining public opinion and all such are the duties of RBI.

 

Only when RBI fails in its duties, banks in any sector fail. RBI has also the

watch dog business in the Banking sector. How and why poor, innocent depositors

are dragged onto the roads for the gross negligence of RBI, is a matter worth

discussing now. Why at all the RBI displays in every bank a notice to the

effect that every deposit is guaranteed to the extent of a lakh of rupees when

it does not honor its guarantee? How many such settlements were made when banks

failed? Why RBI – the controlling machinery could not smell the failure or

mismanagement of a bank well in advance? Any answer from RBI – perhaps NO.

 

Many small depositors gave up their lives and many girls could not be married

due to non availability of funds on time; many small young children could not

further their studies due to blocking up of saved funds of small depositors.

These are all facts and RBI is aware of this. These mistakes are to be owned by

RBI.

 

If RBI is not in a position to upkeep its guarantee for refunding of the

depositors money as promised, what fun it is to write a promise on a currency

note which has basically no value in these circumstances.

 

Another interesting child of RBI is Banking Ombudsman. I have seen banks not

at all responding to the letters, notices of Banking Ombudsman. It is a puppet

creation, perhaps, an eyewash organization created by RBI. I do not know what

powers this particular set up has, to take any action against any bank. It is a

feather of the same bird and nothing much can be expected of it.

 

Today we have another problem – a totally different problem and the most

important point now is, many foreign banks have entered the banking sector of

India and are competing with the banks of Indian origin. The competition is in

such a cut throat way, RBI has become a silent spectator.

 

I really wonder as to how a bank can take a decision for granting of lakhs and

lakhs of rupees loan in a few seconds and why are they permitted to allure

public in such a fashion and why at all did RBI is watching all this and taking

it for granted. Does RBI not aware that it is public money and any bank cannot

play with public money in such a fashion?. A decent publicity that any loan

does take a few days time for processing and finalization is most welcome than

giving a publicity as if the doors are open for the public to carry public money

just like that. Is it not the duty of RBI to resist such alluring ads?

 

At least now, it is time for RBI to reassure public that the deposits are

guaranteed up to a lakh of rupees and in the event of any bank’s failure, the

amount up to the assured sum would be refunded within a specific period of time,

say, three months from the day of failure of the bank.

 

The second point is resisting all banks to go for undesirable publicity in

such a manner that the depositors feel that their saving or investment is

casually spent by the banks. In the absence of a proper assurance, people

prefer other sectors other than investment in banks which would lead to many

other problems to the Nation.

 

In the recent past, after the failure of RBI to repay the deposit the amount

as per guarantee terms, people preferred to invest their surplus in the

unorganized/speculative/unhealthy money market – like local chit fund companies

etc. many of which have over a period of time turned their boards. The money

in the non banking sector is resulting into inflationary trend. Some

investments have gone to stock markets, some to Gold market, and some to real

estate business, thus we find an upward trend in all these sectors within the

past few years – in addition to global market changes.

 

A deposit in a bank is helping the priority sectors/ neglected sectors in the

society, as per the action plan envisaged and this helps the sectoral

deployment of credit to support overall plan of a country. Whereas the flow of

money into speculative markets, gold markets etc is, in no way helpful to any

neglected sectors where support is essential. The other danger in diversion of

funds from banking sector to the other sectors is that it amounts to growth of

black money, as people do not prefer to declare their profits and legitimately

pay the taxes on it. The undisclosed or hidden purchasing power in the hands

of public is the main cause for the inflationary trend in the Country. This has

created a big gap between rich and poor, for, rich becoming richer and the poor

becoming poorest. A danger is ahead of us where a revolutionary check makes us

all victims.

 

Therefore, it is necessary for the RBI to retain public confidence on its

policies.

 

The banking ombudsman’s powers also should be increased to such a level that

his position should be delinked from RBI. No officer of any Bank should be

given this position as they get influenced to take any decision. A third party

– totally independent from the influence of RBI, preferably a retired bank

officer – a senior officer, be appointed as a Banking Ombudsman and sufficient

powers be given to him to decide the cases. He should have powers to summon

even any Bank Chief Executive if needed. Sufficient overall controlling powers

alone can make the position of a banking ombudsman respectful and useful to the

public.

 

All cases referred to Banking Ombudsman should also be settled within a time

framework of say, three months. This time restriction will help the public

that a timely justice is very much assured and anticipated.

 

This is also a fact that some of the banks – particularly the banks of recent

origin, have adopted unfair practices of sending goondaas etc. for recovery of

the dues. This speaks that the banks have no faith in judicial system or other

remedial methods. They only believe this uncivilized, aged old, practice of

unethical banking just to upkeep their recovery. Is it not a shameful act?. It

shows the poor administrative capacities of RBI. Why can’t a law be made on

par with Revenue Recovery Act granting powers to any bank to recover their

monies in times of difficulty? This would have been more a fair deal than

observing silence to the unethical acts of the banks.

 

The growth which is seen in the banking sector is nothing but a paradoxical

error for the reason whether banks try for increase of deposits or not, the

interest earned/accrued on the deposits is accounted every half year as a

deposit only thereby giving a boost to the deposits. Though there is growth in

real cash deposits, it is surely not according to the investment capacities of

public as the money is flowing out to other markets. This is evidently seen due

to flatness of the rates compared to last three years.

 

It is quite difficult for RBI to administer all this in a vast country like

India with multi-dimensional problems, but at least something should be done

as per the expectations of the public and to retain its image. If RBI’s image

is lost, Rupee image is also lost and then

what?................................Dr P V Sesha Sai Aswamedhayaaji

 

Dr P V Sesha Sai Aswamedhayaaji

Camp: Memphis USA, e mail shodasisai, web www.ashwamedhayaagam.org,

blog http://aswamedhayaaji.blogspot.com

Cell 901 592 9130

4th August 2007