Monetary Policy Statement 2013-14 What is in store for you?
Dr. D.Subbarao, Governor, Reserve Bank of India had on 03rd May,2013 announced the Monetary Policy Statement 2013 -14. Apart from the Union Budget announced every year, this is one of the policy statements which I keenly follow, not only as a banker, but even as an individual. If the Union Budget affects the family budget of the people of the country, the Monetary Policy Statement announced by the Governor of RBI can impact the way in which the people in the country do banking. Even though I look at the monetary policy very keenly from two perspective – as an individual and as a banker, for keeping things simple and straight I am limiting most of my observations and analysis as an individual. Thus I will not be mentioning anything about global and macro economic developments, GDP growth or Current Account Deficit(CAD), Money Supply ( M3) etc that fascinates the banker in me. But the announcement that Wholesale Price Index (WPI) inflation is expected to be range-bound around 5.5 per cent during 2013-14, as against an average of 7.3 per cent in 2012-13 cheers me both as a banker and an individual. I hope lower inflation would help me in managing my family budgets better. For protecting retail customers from being adversely impacted by undue interest rate fluctuations arising out of changes in economic cycles and policy rates, the monetary policy has suggested banks to introduce long-term fixed interest rate loan products. Such products, as and when introduced by banks could surely be an instant hit in the financial market. I am waiting for the launch of such products to protect my long term savings from interest rate risk.
Reasons for borrowers to cheer.
Observing wide variations in the rate of interest charged to retail borrowers by banks, even when the loan was sanctioned on the same day RBI have asked banks to have a management oversight on such practices and also frame policies that ensure pricing of loans, especially retail loans, is transparent, realistic, and related to the risk perception of the borrowers. Such a move could result in uniform pricing of retail loans by a bank, and thus the pricing would be more fair and transparent. The proposal to carve out a sub-sector of ‘Commercial Real Estate (CRE) -Residential Housing’ within the CRE sector with appropriate prudential regulatory norms on risk weights and provisioning could see banks increasing their willingness to lend to these sectors and companies being able to raise funds for residential housing projects at a lower cost. Would this translate to lower cost to purchasers of residential houses is a moot point to be seen. If that happens , then coupled with additional income tax benefit of Rs 1 lakh introduced under section 80EE in the union budget 2013, there could be a definite fillip in the demand for residential houses.
Micro and Small Enterprises (MSEs), dealers of fertilizers, pesticides, cattle feed etc also have reasons to cheer. The loan limit for an advance granted to micro and small enterprises (MSEs) in the services sector, for being classified as priority sector has been increased from Rs 20 million to Rs 50 million per borrower. The individual loan limits for indirect lending to agriculture also has been increased from Rs 10 million to Rs 50 million per borrower for bank loans to dealers/ sellers of fertilizers, pesticides, seeds, cattle feed, poultry feed etc . For addressing the concerns emerging from the deceleration in credit growth to the MSE sector, Banks have been asked to strengthen their existing systems of monitoring credit growth to the sector and put in place a system-driven comprehensive performance management information system (MIS) at every supervisory level which should be critically evaluated on a regular basis. This would indirectly put pressure on banks for reducing the turn around time and rejection rate of MSE loans.
Considering the restrictions on granting of advance against gold bullion, the Monetary policy 2013 proposes to restrict the facility of advances against the security of specifically minted gold coins by banks to 50 grams per customer. This could affect your ability to raise loans by pledging gold , if a significant portion of your savings in the form of physical gold is by way of specially minted coins by banks. This point may be borne in mind, the next time you want to buy specifically minted gold coin from a bank.
For RBI, customer is the King.
The monetary policy 2013 also mentions certain customer service initiatives to be undertaken by banks. Thanks to the decision by RBI to implement the recommendation of the Dhamodhar committee on uniformity in intersol charges, it might be possible soon for customers to transact with a bank , than with a branch. RBI has felt that the practice of some banks discriminating against their own customers on the basis of one branch being designated as the ‘home branch’ where charges are not levied for products and services and other branches being referred to as ‘non-home’ branches where charges are levied for the same products and services is contrary to the spirit of the Reserve Bank’s guidelines on reasonableness of
bank charges. With a view to ensuring that bank customers are treated fairly and reasonably without any
discrimination and in a transparent manner at all branches of banks/service delivery locations, banks have been advised to follow a uniform, fair and transparent pricing policy, and not to discriminate between their customers at home branch and non-home branches. This if implemented in letter and spirit by Banks, would simply mean that Any Branch Banking would be totally free to all the customers.
For better currency management and distribution of bank note and coins, the policy spells out various measures like review of incentives and penalties, exploring the possibility of engaging the services of Cash in Transit (CIT) entities and Business Correspondents (BC) for the purpose of distribution of banknotes and coins and identification of lead banks. Involving CITs and BCs in currency and coin distribution would definitely help in addressing the last mile connectivity issues of reaching out to rural masses.
The Banking Laws (Amendment) Act, 2012, had inserted Section 26A to the Banking Regulation Act, 1949 which, inter alia, empowers the Reserve Bank to establish a Depositor Education and Awareness Fund (DEAF). Banks will be required to transfer deposits remaining unclaimed / in operated with them for more than 10 years to this fund within a period of three months from the expiry of ten years. DEAF will l be utilised for promotion of depositors’ interest. However, the provisions of Section 26A do not prevent a depositor from claiming his/her deposit or operating his/her account or deposit after the expiry of the period of ten years and the banking company should pay the deposit amount and claim refund of such amount from DEAF. As per the monetary policy announcement the DEAF would be se up by September,2013 and shortly thereafter we can expect various measures being initiated for protecting the interest of depositors, including for spreading of financial education .
In order to educate the general public and also banks, the Reserve Bank has been placing on its website
Frequently Asked Questions (FAQs) on various topics. The existing FAQs guidelines on KYC/AML were placed on the website in May 2011. Considering the new developments that have taken place in this area including simplification of KYC norms for further enhancing financial inclusion, RBI has proposed to replace the existing FAQs on KYC/AML/CFT with a comprehensive set of questions and answers by June 2013. This would facilitate understanding of KYC/AML/CFT requirements and compliance thereof in a hassle-free manner by banks and the general public.
Many banks have been currently offering wealth management services to their customers through referral services, investment advisory services or portfolio management services. RBI has observed that banks offering wealth management services are exposed to reputational risks on account of mis-selling of products, conflict of interest, lack of knowledge and clarity about products and frauds. Accordingly RBI proposes to shortly issue draft guidelines for stopping practices which may lead to misselling of insurance and mutual fund products by bank employees.
Guidelines on wealth management services offered by banks also will be issued. Banks have also been asked to carry out customer due diligence as required under extant KYC/AML/CFT guidelines wherever third party products are sold as agents. These measures could result in banks having a more long term customer centric view in selling of third party products. Hopefully we can look at days where banks are selling third party products which are best suited for the needs of the customer , rather than for the third party vendor or the bank or the employee.
Financial inclusion initiatives
Considering the need of branch expansion in rural areas for achieving the financial inclusion goals and for ensuring seamless roll out of the Direct Benefit Transfer (DBT) Scheme of the Government of India, banks have been advised to front-load the opening of branches in unbanked rural centers. This could see more bank branches coming up in unbanked rural areas in the next one to two years. The thrust on banks to put in place an effective mechanism to monitor and review the progress in the implementation of Direct Benefit Transfer (DBT) for the delivery of social welfare benefits by direct credit to the bank accounts of beneficiaries could see banks conducting more and more camps for opening financial inclusion accounts and linking old accounts with Aadhaar numbers. The decision to bring all districts in metropolitan areas under the Lead Bank Scheme (LBS) will provide an institutional mechanism for coordination between government authorities and banks, facilitating doorstep banking to the excluded segment of urban poor, and to implement DBT in metropolitan areas also.
RBI has also taken the initiative of spreading financial literacy by preparing a comprehensive financial literacy material consisting of a Financial Literacy Guide, a Financial Diary and Financial Literacy Posters. It is really good to see how instead of direction, direct actions have been coming from the regulator. It is also an indication of how serious RBI is about spreading financial literacy and financial inclusion in the country. Increased financial literacy levels would definitely see changes in the banking habits of the rural people and they liberating themselves from the clutches of private money lenders and moving on to an organized banking systems. With such initiatives I feel “A bank account for every Indian” would be a reality soon
The author, jiz p kottukappally, is working as Asst General Manager,
Catholic Syrian Bank and the views expressed are the
personal opinion of the author.
Author can be reached at jizpauls@gmail.com
