Sunday, September 09, 2012

Banking Is Not A Charitable Business, It is A Commercial Activity

Banking is not a charitable business: Chakrabarty

    (Collected from the newspaper THE HINDU)
    ‘RBI is never satisfied with anything because our expectation level is much higher’
    Reserve Bank of India’s Deputy Governor K. C. Chakrabarty is someone who speaks his mind. That obviously doesn’t endear him to many.
    Often times he has ruffled feathers with his forthright views. When in Chennai recently, he took time off for a candid interaction with The Hindu. Excerpts:
    Do you agree that RBI, by not reducing the interest rates, is responsible for deceleration of the economy?
    These are difficult choices. There are many points in favour of certain things and also many against. I don’t think we have done anything which should not have been done. If interest rate is high, it is because inflation is high. It is not that I derive pleasure by increasing the rate. Whatever Reserve Bank felt was in the interest of the economy has been done.
    (MY Comments: In India survival of millions of poor and middle class families , pensioners, retirees depend on interest income. If interest is reduced it will create more problems for them. For rich  class , high rate of interest will create no impact. Moreover , it is interest which helps in growth of savings and investment.Root cause of falling rate of growth of savings is nothing but low interest rate and it should be a matter of concern for the government.

    Investment is gold is one of the key contributors in rise of Gold import and that of current account deficit .If lending rate is increased by one or two percent and  its impact on the profitability of corporate is insignificant but it will great relief to families depending on interest income and it will boost up savings tendency in middle class families too. )
    When do you think inflation will come down?
    Whenever we produce more goods and services at lower price and when everybody starts charging lower price for the same quality goods and services. Everybody has to tighten the belt and produce more. There is no other way out if inflation is due to supply-side constraints.
    But is it only a supply-side constraint?
    There are a variety of factors. There is a supply-side factor. Demand issues are also there. They are inter-linked. If I say that inflation is high and prices are going up because of supply-side constraints, then the tendency of the people would be to hoard. They will purchase more. That means if they have surplus money they will utilise it. What you need to do is to take away the money from the hands of the people. It is no easy job. It has no easy solution. We need to work harder to produce more goods and services at lower cost that will improve productivity and efficiency. That is the only way you can bring down inflation.
    Sometime ago, you had highlighted the need to cut down on gold consumption. Why is it necessary?
    We have a gold import to the tune of $60 billion, and ours is a current account deficit country. How do you reduce gold import? If you have to reduce, you have to change the culture. We have to stop using gold. The country as a whole must change. Then only gold import will come down.
    Gold became a part of our culture in marriages and in ornaments when we were a rich society and when India was contributing to 31 per cent of the world gross domestic product (GDP). Now we are a poor country. Given the situation, this is the way we have to do. There is no other way.
    In terms of customer satisfaction in banks, is RBI satisfied?
    RBI is never satisfied with anything because our expectation level is much higher. More than RBI, I am concerned if the customer is satisfied. I am satisfied if the customer is satisfied. We are telling the banks to improve.
    Is technology a component in improving the service levels?
    Definitely technology helps. But it can also deteriorate service. For, technology takes away the human touch. We need a right combination of brick and mortar and click and mouse. That is what our entire focus to financial inclusion is — how do you bring a combination of technology, physical branch infrastructure, human manpower, and the banks policy? All combined together has to work together.
    Deposit in ATMs is not taking place. Why?
    ATM is about anytime getting the money. Deposit can wait the next day. However, the issue [of deposits] was discussed at the last meeting of Finance Minister. The FM asked banks to look into the particular aspect of technology (to facilitate deposit in ATMs). Deposits in ATMs will become a reality. It depends on the cost-benefits. Please understand one thing. All these facilities bank will do only as a commercial activity.
    Hasn’t the cost of banking services increased?
    Yes, cost has gone up. With the help of technology, you can bring it down. When more people start utilising technology, the cost comes down. Take the example of mobile telephony.
    Isn’t mobile different considering that banking services were always presumed to be free?
    Banking was never free. It [cost] was hidden in deposits. They were paying you less. Banks were never ever unprofitable.
    It is all how do you charge. If you go to a restaurant, he says I charge two rupees per chappati, but the dal is free. Can you ask him to give you only dal. Nothing is free.
    Will you be regulating banking charges?
    Generally, banking regulator is one who does not specify the pricing for banks. But what we ask the banks is that the pricing should be reasonable, it must be logical and not be exploitative. For a normal customer, it should be transparent and non-discriminative, and if it does not happen, we definitely interfere.
    Are you looking at an equitable spread of ATMs?
    Our new guideline on the white label ATMs will partly address that issue. When the technology comes, we don’t want to regulate it, then it will not evolve. As and when the ATMs become acceptable, then we will start. We are now experimenting with technology, and such measures should be viable. We must understand that banking is not a charitable business, it is a commercial activity.
    How long does it take to move away from cash transaction?
    Tell me which country has been able to move away from cash. You can reduce utilisation of cash. You cannot do away with the movement of cash.
    What is the biggest challenge for RBI now?
    In my area, the biggest challenge lies in taking banking to everybody, providing access to this large population, and keeping banking system safe and sound. Another challenge is to see how the financial system can contribute to accelerate the real sector growth.
    Do you think finance companies, especially the unincorporated ones, are a cause of concern?
    People should not do business with unincorporated bodies. We have no accountability towards them. They have to be regulated by the State government if they are not following the law. We have our accountability towards institutions regulated by us. We try to see that they do not exploit the people and the system remains healthy and they play an important role in financial sector development.
    Is RBI keen on larger NBFCs converting into banks?
    NBFCs have to grow. If it has to survive, any financial entity has to grow. Standalone NBFC is not a great success as a business model, so they have to, over a period of time, convert into bank or they have to work in a very niche market where they have a specific knowledge of whom they cater to.
    On the issue of micro-finance, RBI Governor had asked banks to take over the last mile operations?
    Micro finance is part of NBFC. Globally, many people feel that one of the regions of financial instability is shadow banking activity … that means non-banking entities doing the bank-type functioning. In that way, micro finance NBFCs will come under closer scrutiny. Micro-finance institutions or NBFCs have a role to play. What the Governor is trying to say is that if banks are able to improve their penetration, then financial inclusion becomes possible. We are also not saying that micro-finance or NBFCs are not important. They bring people who are in the clutch of moneylenders to some sort of institutional financing.
    The economy is moving from savings-led to a consumption-led. What is your take on this?
    How do you consume when you are not able to save. Somebody has to save. Our requirement is so high. We require more investments. That is why we have to remain a savings-oriented economy till we feel that somebody else is ready to finance my investment requirement.
    We are a current account deficit country. So, there is no other way than to tighten our belt, and we have to encourage savings.

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