Need for a General Grievances Forum
Of late, the markets are flooded with several financial institutions / companies and products and it is impossible even for educated people to verify the genuineness of the finance companies and the products they market.
There are some finance companies offering mutual fund products, insurance products, running chit funds and offering varieties of brokerage and other services in and around all cities.
Even many of the new generation banks offer varieties of insurance and mutual fund products in their premises. It is practically difficult to come out of a new generation bank without being trapped for some investments in their insurance/mutual fund products.
They have many subsidiaries operating from the bank premises and it is embarrassing to ask whether the subsidiaries are licensed or authorised to do business from bank branch premises.
As scams and frauds occur every now and then even in well regulated institutions / Companies, it is high time vigilance is kept on all types of finance companies and public are suitably warned from being duped. In the case of banks offering insurance products, it should be widely publicised by IRDA that what are the types of products they have authorised the banks’ subsidiaries to deal with and what type of charges they can levy from customers. It should also be made clear to the public that whether banks are offering the products or their subsidiaries are offering the products.
The extent of the liability that the bank bears on behalf of their subsidiaries also should be made clear to public before they are made to invest.
The canvassing of business keeping the image of the bank and that too in banks premises by banks own subsidiaries without making the charges transparent to the investors is nothing but trapping the gullible customers.
The finance companies / institutions should indicate their regulator and their full address in all their forms prominently for investors benefit when they canvass business.
The Reserve Bank and SEBI should also have the moral responsibility to bring to public knowledge in these days of liberalisation as to what type of products and what sort of control they have on various institutions they regulate and to what extent public are safe in investing their hard earned savings.
Similarly, IRDA has to periodically come out with the information relating to institutions dealing with insurance products, their collaborations, and the type of products and the general nature of risks customers have to understand, the charges to be borne by the customers and the lock in period of investments etc.
Several insurance products are in the market and they are all mostly marketed as investment products and customers are at a loss to understand fully what is in store for them till they get the policy and in case they take the pains to read the fine print.
Marketing has been aggressive these days by private institutions in particular and contacting persons in these institutions has been virtually difficult as the business is practically carried out virtually through computerised system and information technology.
The State Governments also should publicise once in a while the list of companies they have authorised to function and offer financial services. There should be a reference point for public to verify the genuineness of the institution and the products they offer.
A general grievances forum to refer cases of doubtful nature should be thought of jointly by all regulators for the benefit of public, regulators and institutions / companies as well.
The caution that Customers have to be cautious and the products they buy are subjected to market risks will not alone be sufficient to keep the institutions/ companies away from indulging in all sorts of marketing gimmicks and canvassing business.
The image of the economy, the regulator and the institution and ultimately the customer has to be well taken care of by proper rules, regulations and control.
The presence of Ombudsman who takes care of basically grievances arising from deficiency of service to customers may not be of much use in respect of issues referred to above.
Dr.T.V.Gopalakrishnan
( This Write-up appeared in Business Line dt 10/05/10)
Sunday, May 9, 2010
Friday, April 30, 2010
Interest on Savings
Interest Rate on Savings
This refers to your edit on Not One More Committee ( Et dt,24/04/10).It has been the experience that committees after committees get appointed to study certain issues before any final decision is taken and implemented. As rightly pointed out three committees have already studied and come out with their recommendations more or less on the same lines to replace administered rates of interest with market linked rates on small savings and there is delay on the part of the Government in coming out with its decision. This delay does not augur well either for the economy or for the savers.
The inflation keeps on going up and there is no talk of real interest rate these days. Even the market rates both on savings and lendings do not reflect the inflation. Unfortunately there is no central rate of interest or bench mark rate of interest in our system on which other rates revolve around. It is time to free rates from the clutches of administratin and see that all savings rates are linked to market rates for the benefit of savers and to give a semblence of continuity of reforms. There should be real rate of interest to induce savings. Savings will also contribute to bing down demand driven inflation.No economy can prosper without an inducement for real savings.
Dr.T.V.Gopalakrishnan
This refers to your edit on Not One More Committee ( Et dt,24/04/10).It has been the experience that committees after committees get appointed to study certain issues before any final decision is taken and implemented. As rightly pointed out three committees have already studied and come out with their recommendations more or less on the same lines to replace administered rates of interest with market linked rates on small savings and there is delay on the part of the Government in coming out with its decision. This delay does not augur well either for the economy or for the savers.
The inflation keeps on going up and there is no talk of real interest rate these days. Even the market rates both on savings and lendings do not reflect the inflation. Unfortunately there is no central rate of interest or bench mark rate of interest in our system on which other rates revolve around. It is time to free rates from the clutches of administratin and see that all savings rates are linked to market rates for the benefit of savers and to give a semblence of continuity of reforms. There should be real rate of interest to induce savings. Savings will also contribute to bing down demand driven inflation.No economy can prosper without an inducement for real savings.
Dr.T.V.Gopalakrishnan
Monday, April 26, 2010
Monetary Policy
A soft monetary policy
This refers to the Article on ' a soft Monetary Policy( Business Line dt 23/4/10).The monetary policy has rightly pleased the market banks and borrowers, but is not an answer to ever increasing inflation faced by common man. The food inflation has touched 17.65% and by any reckoning it can only increase in the coming months.The projection of whole sale Price index at 5.5 Percent by March 2011 has not been well justified or explained by RBI. The Government's expectation is still below 5.5% . As per the paper reports , there is a move to further increase the fuel prices when the damage done to inflation by an earlier increase through budget has not yet been removed by any administrative measures particularly by state governments.
The present inflation is both on account of supply constraints and demand driven.The measures by RBI are basically to contain inflation from demand side and from this angle the steps as rightly pointed out in the article do not measure upto expectations as CRR increase of 0.25 % is insignificant in view of high liquidity surplus and easy monetary conditions in the system. There are no other measures to compel the banks to make money dearer particularly for borrowers engaged in speculative activities . Repo and and reverse repo rates have their own limitations.It is high time the Reserve bank introduces some innovative measures or revive the Bank Rate suitably to influence credit flows particularly speculative credits affecting inflation.
Edited version appeared in Business Line Dt26/04/10
Dr. T.V Gopalakrishnan
This refers to the Article on ' a soft Monetary Policy( Business Line dt 23/4/10).The monetary policy has rightly pleased the market banks and borrowers, but is not an answer to ever increasing inflation faced by common man. The food inflation has touched 17.65% and by any reckoning it can only increase in the coming months.The projection of whole sale Price index at 5.5 Percent by March 2011 has not been well justified or explained by RBI. The Government's expectation is still below 5.5% . As per the paper reports , there is a move to further increase the fuel prices when the damage done to inflation by an earlier increase through budget has not yet been removed by any administrative measures particularly by state governments.
The present inflation is both on account of supply constraints and demand driven.The measures by RBI are basically to contain inflation from demand side and from this angle the steps as rightly pointed out in the article do not measure upto expectations as CRR increase of 0.25 % is insignificant in view of high liquidity surplus and easy monetary conditions in the system. There are no other measures to compel the banks to make money dearer particularly for borrowers engaged in speculative activities . Repo and and reverse repo rates have their own limitations.It is high time the Reserve bank introduces some innovative measures or revive the Bank Rate suitably to influence credit flows particularly speculative credits affecting inflation.
Edited version appeared in Business Line Dt26/04/10
Dr. T.V Gopalakrishnan
Thursday, April 8, 2010
Capitalising on Cheap Funds
This refers to your editorial on 'capitalising on cheap funds' (Business Line dt,3rd March,2010). It is the best opportune time to bring in funds from international markets to give support for our economic growth targeted beyond 9 percent. Raising money from domestic market will become costly as the Reserve Bank has already signalled through its recent policy measures in increasing CRR,REPO and Reverse REPO rates. Further tightening is in the offing as per the indications. In view of the huge market borrowings envisaged by the Central Government, the chances of comfortable funds position for private sector's borrowings are being ruled out in the near future.
Since the international funds are cheap compared to domestic funds, it is advisable to encash the opportunity by corportes. Though the increase in inflows may have its own adverse impact on forex rate and inflation, still the advantages, the economy derive from huge productive investments and growth are very many and can certaily offset the disadvantages in the long run. What the economy now requires is huge resources for producive investments and when these are available at a cost affordable, why not take advantage ? As rightly pointed out in the editorial the confidence level in our Economy has gone up in international markets and capitalising the same for a good cause can only boost the confidence further.
Dr.T.V.Gopalakrishnan
Since the international funds are cheap compared to domestic funds, it is advisable to encash the opportunity by corportes. Though the increase in inflows may have its own adverse impact on forex rate and inflation, still the advantages, the economy derive from huge productive investments and growth are very many and can certaily offset the disadvantages in the long run. What the economy now requires is huge resources for producive investments and when these are available at a cost affordable, why not take advantage ? As rightly pointed out in the editorial the confidence level in our Economy has gone up in international markets and capitalising the same for a good cause can only boost the confidence further.
Dr.T.V.Gopalakrishnan
Working Autonomy
RBI The Sovereign Scapegoat:
This refers to the article on RBI : The Sovereign Scapegoat (Business Line dt,1/04/10). The very title speaks volumes of the so called autonomy or independence enjoyed by the Reserve bank of India, the monetary authority of the country and the regulator of the financial system. The institution originally set up as a shareholders bank in 1935 was nationalized in 1949 and since then has been functioning as an independent institution but owned fully by the Central Government with adequate overruling powers in terms of The Reserve Bank of India Act 1934.
Political agenda of the ruling party will always override the economic agenda and the institutions like RBI in a democratic set up cannot expect to have the full freedom as some of the central banks of the world enjoy perhaps. With all the limitations , the Reserve Bank has done an excellent job and successfully completed 75 years managing the economy and the financial system well and earned a reputation as one of the well run central banks of the world only indicates how independently the Governors carry out their responsibilities although they are appointed by the Central Government. The working autonomy is achieved and not defined anywhere. This is where RBI and its Governors can be proud of.
Dr T.V.Gopalakrishnan
This refers to the article on RBI : The Sovereign Scapegoat (Business Line dt,1/04/10). The very title speaks volumes of the so called autonomy or independence enjoyed by the Reserve bank of India, the monetary authority of the country and the regulator of the financial system. The institution originally set up as a shareholders bank in 1935 was nationalized in 1949 and since then has been functioning as an independent institution but owned fully by the Central Government with adequate overruling powers in terms of The Reserve Bank of India Act 1934.
Political agenda of the ruling party will always override the economic agenda and the institutions like RBI in a democratic set up cannot expect to have the full freedom as some of the central banks of the world enjoy perhaps. With all the limitations , the Reserve Bank has done an excellent job and successfully completed 75 years managing the economy and the financial system well and earned a reputation as one of the well run central banks of the world only indicates how independently the Governors carry out their responsibilities although they are appointed by the Central Government. The working autonomy is achieved and not defined anywhere. This is where RBI and its Governors can be proud of.
Dr T.V.Gopalakrishnan
Thursday, April 1, 2010
Banking Challenges
Both The Reserve Bank and the banking system deserve kudos for their mighty performance and demonstrating to the world Financial system as to how to survive the varieries of risks banks are exposed to in these days of liberalisation, emergence of exotic products and linkages with various markets. This should not, however, make them complacent and sit on laurels. The challenges ahead are different and they have to be prepared with different skills,knowledge and dynamism to continue to perform better and remain sound and healthy.
The major challenge would be in the area of operational risk and risks arising from international markets involving liquidity, interest and forex risks. Asset -Liability mismatch will be another area of serious concern for Indian banks to deal with. In the absence of adequate attention to develop the human resources to meet the challenges ahead, any sound regulatory system will not prove to be of any help. Human Resources management particularly in Public Secor banks needs a boost and this itself will be a challenge as the cost to train and retain them would be something enormous.The advantages of being in public sector cannot be expected to remain so in a competitive atmosphere and should not be so to provide a level playing field to the private sector.
Dr.T.V.Gopalakrishnan
An edited version of this appeared in Business Line Dt,30/03/10
The major challenge would be in the area of operational risk and risks arising from international markets involving liquidity, interest and forex risks. Asset -Liability mismatch will be another area of serious concern for Indian banks to deal with. In the absence of adequate attention to develop the human resources to meet the challenges ahead, any sound regulatory system will not prove to be of any help. Human Resources management particularly in Public Secor banks needs a boost and this itself will be a challenge as the cost to train and retain them would be something enormous.The advantages of being in public sector cannot be expected to remain so in a competitive atmosphere and should not be so to provide a level playing field to the private sector.
Dr.T.V.Gopalakrishnan
An edited version of this appeared in Business Line Dt,30/03/10
Eternal Vigilance
Eternal Vigilance
Dr.T.V.Gopalakrishnan
Edited Version of this appeared in ET 29/03/10
This refers to your edit 'So far so good' (ET,27 March 2010). Though Indian Banking System as rightly pointed out is largely healthy, it requires continuous monitoring and remedial action to withstand unexpected shocks and dangers. Holding huge amounts of restructured loans which are potential Non performing assets and financing of infrastructure projects with short term deposits consisting of whole sale and bulk institutional deposits would create Asset- Liability mismatch. In the absence of suitable take out finance and with the presence of more and more new products including the derivatives in a vast and fast growing financial market with international linkages, the risks faced by the system are unpredictable. The confidence level presently enjoyed by the system,(70% being in the public sector) cannot guarantee business success and security for ever which require, skill, expertise, knowledge, dependable system and procedure and above all efficient regulatory and supervisory environment. The banking system has to be dynamic, proactive and vigilant to keep it safe and healthy.
Dr.T.V.Gopalakrishnan
Edited Version of this appeared in ET 29/03/10
Subscribe to:
Posts (Atom)
