Yes Sir Culture IS Poison For Banks AS WELL AS For The Country

FM Teaches Bank CMDs to Subvert RBI Rules - 

                          Some CMDs Oblige FM – 

Senior Citizens With Negative Returns Left to Fend For Themselves -

While IBA Chairman Bats for Big Houses And 

Ignores Bank Employees

by

Rajesh Goyal  

In last fortnight (1st July to 15th July 2013), I have come across few headlines which when read in isolation do not appear to be of much consequence but when read together exposes the mind set of our politicians and majority of top brass of banks.  I give below four news items which have appeared in last fortnight (You can read the full news by merely clicking on any of these links).  For the benefit of our readers I will try to analyse the same and give the impact of these  :-

(a)   Chidambaram asks banks to reduce Base Rate (Hindu – 3rd July, 2013)

(b)   5 banks cut base rate, no word from others (live mint – 10th July, 2013)

(c) Fixed deposits earning you negative returns (ToI – 10th  July, 2013)

(d)   PNB's KR Kamath leads bank chiefs clamour for a cut in policy rate (ET – 12th July, 2013)

In the first news item, our Finance Minister, Mr Chidambaram asked banks in India to reduce their Base Rate.    On the face of it,  the news appeared to be a routine type as on number of earlier occasions too FM has cajoled banks to reduce their lending rates.  However,  this time FM asked for reduction in Base Rate (not lending rate).  

I was shocked as to me it appeared to be encouraging bank CMDs to flout the norms of RBI on base rate.   I still remember that in 2010 when Base Rate was introduced by RBI, one of the major reasons for replacing the old BPLR was the fact that BPLR was not a transparent rate.   Thus while introducing Base Rate, RBI laid down certain norms which banks have to follow on consistent basis so as to arrive at the Base Rate.  Thus, as per RBI guidelines, Banks are required to follow strictly the norms laid down by each bank on consistent basis. 

Thus, no bank can reduce Base Rate by tinkering with the calculations.  If it does so, it is flouting of  RBI’s guidelines on base rate which must be transparent and is in no case at the whims of the CMD.   Mr. Chidambaram in the said meeting told: “In my view, reduction in Base Rate would be a powerful booster to the economy, powerful stimulus to credit growth.”  

Now by asking CMDs of banks in an open meeting to REDUCE THEIR BASE RATE, the FM was basically encouraging them to flout RBI norms.  CMDs who believe in Yes Sir culture immediately  announced reduction in Base Rate without even bothering to checkwhether they can do so as per norms.   

However, SBI  and few other banks refused as they relised that it will be against the guidelines of  RBI.  

Now question arises,  have these banks flouted RBI norms?

How did they do the revised calculations on the same day or next day, that they were able to oblige FM?.   

Thus, these banks (i.e. Central Bank of India, Union Bank of India, Oriental Bank of Commerce, Bank of India and Canara Bank) were either cheating the borrowers earlier or have flouted RBI norms under pressure from FM.   Both these conditions are against the norms and needs investigation by RBI.   

Is RBI or its officials listening or they will wait for action only after the  next expose by another online portal like Cobrapost?

Now, question is for whom did the FM was batting for when he asked CMDs to reduce base rate.  Certainly he was batting for industrialists and other big borrowers.  In the pre-election period, he appears to be on the sides of big industrialists and is working against the interest of the common man.

Now coming to the news of negative returns on Fixed Deposits.   Who keeps funds in FDs in banks ? – mainly poor and middle class people and retired people as they feel it to be safe.  This is the most vulnerable class and in an era of inflation, they are the worst hit.  Thus, negative returns are in reality in drain on  poor people and retired people who are dependent on the interest income. 

Have CMDs of banks and / or FM has taken note of this aspect?  Not at all.   

I am sure none of them is bothered for this class and they do not mind paying them negative returns.   Top banks, under the nose of IBA Chairman,  have even reduced the amount of small differential  interest payable to senior citizens.   Thus, negative returns are a big set back for people who are dependent on interest incomes.  However, neither FM nor CMDs of banks can understand the plight of such senior citizens.

Instead of batting for poor and retired people, Mr Kamath (IBA Chairman)  is now batting for other CMDs and has asked RBI to cut policy rate and pay interest on CRR.   

Are PS Banks pro-poor or anti-poor?  

I am sure not even one CMD has guts to say in public that they are anti-poor.   If he says so, he will be axed soon.   I would like to ask Mr Kamath and other team members for whom they are  batting?   :-

                 (a)  In case RBI reduces CRR rate or pays interest on CRR balances, will  Mr Kamath and his party give commitment that depositors will get a positive return which will be in line with sound economic policies and will certainly encourages deposit growth which will be good for the country?;

                 (b)  In case RBI pays interest on CRR, will Mr Kamath and his party give commitment that  PS Banks will pay 6% to 7% interest on Saving Fund Deposits as is being paid by some private sector banks?.   Keeping SF interests tied to 4% is a direct fraud on rural masses as they do not have avenues to keep their funds at higher rate of interest.   Payment of interest at 6% to 7% in SF accounts  will certainly increase their CASA. 

 I am sure Mr Kamath and his party who are asking RBI for concessions (including reduced provisioning norms for restructured accounts)  to cover up the misdeeds on NPA front, will fumble for words on above two issues.   Their balance sheets will go into red if they implement the above two demands of  the general public.    I wish somebody approaches CCI and files petition for cartelization of major Banks on interest paid @ 4% to SF depositors.

I wish CMDs of Banks do their home work before they ask RBI Governor to meet their demands.    IBA Chairman is hiding behind ghughant  (I am avoiding use of burqa as I can then be dubbed as Modi's man !)  as far as the talks on 10th BPS are concerned.   

Poor Bankers are patiently waiting for progress in talks for settlement of 10th BPS which is now already overdue by almost 9 months.   

Will Banks pay interest to their employees for the delayed period?

Why IBA Chairman is silent on issues relating to payment of interest to employees on arrears?   

The delay in settlement  is purely on account of IBA’s delaying tactics.    CMDs of banks are least bothered for their employees but are ready to flout RBI norms to please FM.  

UFBU leaders need to learn from CMDs - the art of creating pressure for payment of interest on CRR.   

Will they enusre that bank employees get their due share?

http://www.allbankingsolutions.com/Press-Release-Views/Base-Rate-cut.htm

Customers Lose Money Value because Bank Interest Rate Is less Than Inflation Rate

Fixed deposits earning you negative returns--Times of India

BANGALORE: Holders of fixed deposits have been earning a negative return in real terms for most of the preceding five years, thanks to inflation outstripping interest rates. 

To make matters worse, depositors continue to be taxed on this nominal income.

Although bank fixed deposits have never been tax friendly, the level of compliance has been sketchy. But compliance is slowly getting stricter. In the past, RBI norms required banks to take into account deposits in one branch for the purpose of tax deduction at source—a rule which allowed depositors to break up FDs across branches to avoid TDS.

Also, several private banks allowed customers to break up FDs and route them into multiple branches to avoid TDS. But after recent sting operations banks are getting tough and taking into account interest income from all branches for the purpose of TDS.

A study conducted by Ashish Das, professor, IIT Mumbai's department of mathematics, shows that for most of the five years since 2008-09 real returns on bank fixed deposits have been negative.

The lowest real return was -5 .4% in 2009-10 when consumer price index for industrial workers CPI-IW rose by 12.4% and the weighted average deposit rate on term deposits was 6.97%. The weighted average return takes into account the average cost of deposits for banks after factoring in the extent in each maturity basket. Although bankers offer the highest return on deposits of 3-years and above, bulk of bank deposits are around the one-year category.

RBI's weighted average deposit rates are available only up to March 2011. However , given that long-term deposit rates have not crossed 10% and that most deposits are in the one-year basket, it can be safely assumed that the weighted average deposit rates are not above 8.5% for the last two years. The highest real return in recent years has been 2011-12 when the return after being adjusted for inflation stood at 0.2%. In 2001-02 , bank FDs had recorded a real return of 5.3% given that CPI rose by only 4.3% even as bank deposits yielded over 9.6%. According to Das, the tax on interest income on fixed deposits is unfair to investors.

http://timesofindia.indiatimes.com/business/india-business/Fixed-deposits-earning-you-negative-returns/articleshow/20997069.cms