RBI Regulation Low
29 April 2011
The Reserve Bank of India (RBI) has placed a discussion paper –“Deregulation of savings bank deposit interest rate” on its website. The paper argues for deregulation of saving bank deposit rate (which is fixed 3.5% since March 2003), saying market based interest rate may be beneficial to savers. This news has been covered by Tribune, Hindu, Mail Today, Hindustan Times, Times of India, Business Standard, Financial Express, Business Standard and Hindu Business Line. Times of India just raised a question- “Savings a/c to offer higher interest?”. The editorial in Financial Express is lone editorial among the newspaper crowd, concludes- “..RBI doesn’t believe freeing savings rates could result in an asset-liability mismatch- this is a big fear of banks- since over 90% of savings deposits tend to be çore’. If RBI is bit hesitant, it’s because freeing rates could hit the growth of ‘no frill accounts’- after all, if banks don’t get access to cheap money, why would they want to invest in servicing such accounts? What that means is savers will have to get used to paying for services ...”. Santosh Kumar feel if RBI goes for deregulation, it may benefit small private banks with low CASA (current account and saving account). Deregulation of savings interest rate will be good news for setting up a base for new banks in waiting. But will Main Street switch over to these relatively small, new banks? And switch over from public sector banks, which are known to be less prone to financial risks? Hang on, Santosh rightly points out- “Once deregulated, interest rates on saving accounts may not only increase but decrease too, depending on the liquidity and rate situation...”. Remember, Indian banks are free to fix interest rates on all term deposit, but today, the maximum interest rate offered by any bank does not cover the retail price rise faced by the main street. They are happily maintaining their interest margins! Last year, the Indian banks demanded that RBI should lower interest rate on saving account. So, what are you waiting for, send in your comments to RBI on this discussion paper before 20th of next month.
28 April 2011
The Indian Banks are having a fun run with huge profits. Is there anything else one should be concerned about? The Reserve Bank of India (RBI) has recently raised concern about their too healthy margins but the retail depositor continues to get a raw deal. The prevailing term deposit rates are way below the inflation rate, but who cares? Can the RBI take steps to ensure at least public sector banks decrease their profit margin and increase term deposit rates for main street? Given the recent experience, RBI is soft on erring banks. The HT correspondent feels that the recent penalty imposed by RBI on 19 banks for violating instructions while selling derivative products to the companies will hardly be a deterrent for the banks. Reason- it’s too low, as low as 0.001% of their net profits! The RBI official explained- “It is not only about the monetary side of penalty. It is about the shame of being penalised”. Hang on, why doesn’t RBI’s Banking Ombudsman penalise the banks that it finds guilty of deficiency of service/ non adherence to banking norms etc? Nor does it provides any quantum of compensation to the complainant (for complaint other than related to credit cards). Did you get the logic?
Banking Ombudsman soft on largest public sector bank in India
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Reform Banking Ombudsman
Latest Law Commission on Cheque Bounce
J. Venkatesan reports that the Law Commission of India has recommended setting up of fast track courts to dispose over 3.8 million cases pending cheque bounce cases and has suggested that an amendment to the Instruments Act to compel the drawer of a cheque to pay 50 per cent of the amount of the receipt of summons. The head of Commission, Justice A. R. Lakshmanan has noted that because of the huge pendency of the cases the credibility of the business within and outside the country suffered a serious setback.
“Dishonour of a cheque by a bank causes incalculable loss, injury and inconvenience to the payee, and the credibility of issuance of cheque is also being eroded to a large extent…” (Hindu. 31 May 09).
Banking Ombudsman on cheque Bounce
However in contrast, the Banking Ombudsman set up by the Reserve Bank of India (RBI), does NOT share this sentiment. If a Bank wrongly dishonours a cheque of a common man, the Banking Ombudsman set up by Reserve Bank of India does not feel this serious deficiency in Bank’s service requires any compensation for loss or damage to awarded to the affected common man.
Why? According to amended Banking Ombudsman Scheme, 2007 the Banking Ombudsman can award compensation not exceeding Rupees one lakh to the complainant in the case of complaints arising out of credit card operations, taking into account the loss of the complainant's time, expenses incurred by him as also, harassment and mental anguish suffered.
Under RTI Act, Public Information Officer (PIO), Reserve Bank of India was asked- Why compensation awarded by Banking Ombudsman does not taken into account the loss of the complainant’s time and harassment and mental anguish for other complaints apart from those related to credit card operations? Take a look at the reply- “There is no provision in the Banking Ombudsman Scheme, 2006 to provide such compensation”. Hang on, why there is no provision in the Banking Ombudsman Scheme, 2006 to provide such compensation?
The practical experience at Banking Ombudsman reveal that officials of Banking Ombudsman of RBI have soft corner for the largest public sector bank of India- State Bank of India. Despite the fact that they observed - “the bank had erroneously returned the cheque” Banking Ombudsman noted that by refund of actual expenses in pursing complaint (Rs. 2000) and apology, “complaint has been reasonably addressed and no further compensation for any loss or damage on account of the deficiency in Bank’s service could be allowed…”. This is in contrast to its decision, a year ago, against Corporation Bank which too had wrongly bounced cheque of the same senior citizen - “..It is therefore advised that the complainant may be compensated with Rs, 1500/- towards harassment caused…”. Why so soft on SBI? Further Banking Ombudsman did not issue any directions to SBI nor to Corporation Bank, on account of serious deficiency of service. Coming back, SBI did not render any sincere apology to the senior citizen. What to talk of promising efficient customer service or responding to query under RTI, sent through post office.
More on the working of Banking Ombudsman. The Banking Ombudsman passed an Award against the erring State Bank of India (SBI), the passbook of complaint also mentioned-”As per orders passes by banking Ombudsman..”. However, the official letter from Banking Ombudsman maintained that that complaint was resolved amicably between the bank and the complainant. No award was passed, how to contest? When it was asked under RTI Act that- “were terms of settlement signed by both complainant and the bank before the Banking Ombudsman as a mark of settlement/agreement? Please list the number of complainants disposed by settlement where terms of settlement was signed by the bank and complainant in 2007-08? The response of RBI-”No such practice is envisaged under the provisions of the Banking Ombudsman Scheme, 2006”. Not surprising, on record, ,majority of complainants Banking Ombudsman are amicably resolved. What option does the common man have when the normal grievance redressal mechanism fails? To sit at home and accept the helplessness or to approach the Courts, aleady overflowing with cheque bounce cases?
In the light of public interest Justice & A. R. Lakshmanan’s observation, SARCAJC appeals to Reserve Bank of India to Amend the present Banking Ombudsman Scheme so that compensation can be awarded to common man (taking account the loss of the complainant’s time and harassment and mental anguish), whose cheque is wrongly bounced by any Bank. Further, apart from officials of Reserve Bank of India, two active representatives of general public should be included in Banking Ombudsman structure so that Banking Ombudsman Scheme effectively works in public interest and eases the pressure of cheque bounce cases in the Indian courts.