Indian Banking Scenario – 3

ramkey By ramkey, 9th Sep 2013 | Follow this author | RSS Feed | Short URL http://nut.bz/5zhj5kqh/
Posted in Wikinut>News>Business

Subba Rao ensured RBI’s independence. Indian banks are hauled up for violation of KYC norms. Wealth management business is attracting many banks. Many new banks are coming up in India.

If Indian Bank Fails, the Government Will Save It

Subba Rao Ensured the Independence of RBI

Top Indian bankers have appreciated and hailed Subba Rao’s work. Subba Rao is the retiring RBI Governor. He toes an independent line and pointed out the deficiencies of the Indian government’s fiscal policies which clashed with the monetary policies of the RBI. Only when the fiscal and monetary policies are in tune with each other can the economy prosper. But this is seldom the case in democratic countries because the fiscal policies have electoral compulsions whereas the monetary authorities need not have to face the people and hence can decide on the right policies. Indian government should be relieved that Subba Rao is out of RBI.

Bank Stocks Are Rising

Share prices of banks have soared on the new RBI Governor Rajan’s proposals. The new Governor wants to strengthen the balance sheets of the banks. But how can this be done when the government is forcing the banks like Indian Bank to lend to unworthy people? These loans are bound to become NPA sooner or later. Therefore Rajan’s statement cannot be seriously taken.

Wealth Management Attracts Many Banks

Wealth management has gained prominence among Indian banks. Even the public sector banks have taken to this job in order to attract rich customers to their fold. Besides, ordinary Indian people have now avenue open to park their funds in non-banking activities like the mutual funds. Internet has enabled many people to invest sitting at their homes and offices by simply opening a bank account and a demat account.


Nothing Will Happen To the Banks on KYC Violation

RBI is expanding its list of banks for taking action for violating KYC (Know Your Customer) norms and also for indulging in money-laundering schemes. But those who know about Indian banking system know that ultimately nothing is going to happen and the matter will be dropped into the dust bin. 22 banks have already been fined for Rs.50 crores for violating KYC norms. But this is peanuts. A British parliamentary panel has recommended bold steps to make the banks and the boards accountable for their action. This should be followed by the RBI also. At present there is no accountability for banks like Indian Bank.

If Indian Bank Fails, the Government Will Save It

Banks are indirectly cheating the deposit customers by applying quarterly interest on their deposits instead of monthly interest. This robs the customers to the tune of Rs.2.5 thousand crores every year. But they charge their borrowers on monthly basis and gain two fold. The Finance Minister is pressing the banks to cut lending rates because it is the election year in India. But banks are hesitant as their balance sheets are already under tight pressure. At this time the corporates are also lining up to obtain banking licence to start new banks. Within a short time India is going to be flooded with banks which will indulge in cut-throat competition to attract business. Out of these new banks, some like Aditya Birla Nuvo, Reliance Capital, Religare and Magma Fincorp may make a success. There will be failures also. RBI will have to look at these applications carefully because if Indian Bank fails, the Indian government will pump in capital and save it but if a private bank entity fails, the government may not step in to save the depositors’ money. Fee-based incomes of the banks is also under pressure.

Tags

Kyc Violations, Money Laundering By Banks, New Banks To Come Up In India, Rajan New Rbi Governor, Subba Rao, Wealth Management By Banks In India

Meet the author

author avatar ramkey
I am running a coaching centre and teach Mathematics, Physics and Chemistry for students appearing in competitive examinations like IIT, SAT etc I am interested in journalism as a pastime.

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