| Non- maintenance of minimum balance should not be charged, says RBI |
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Mumbai, 31 January The Reserve Bank of India ( RBI) on Friday asked banks to discontinue the practice of levying penalty on nonmaintenance of minim balance in ordinary savings bank account, a move that may hit the fee- based income of banks. "Banks may discontinue the practice of levying penalty for nonmaintenance of minimum balance in ordinary savings bank accounts and instead consider converting such accounts to Basic Savings Bank Deposit accounts," said RBI in the Annual Report of the Banking Ombudsman Scheme for 2012- 2013. Among the other action points for improving customer protection are: banks and Indian Banks' Association (IBA) will revisit the ' reasonableness' of the proposed levy of charge for transactions done by customers at banks' own ATMs. This comes at a time when banks, particularly public sector banks, were contemplating an increase in ATM transactions charges. Notably, on Thursday, RBI deputy governor K C Chakrabarty had said at an event in Mumbai that it would be " ridiculous" for a bank to charge its own customers for ATM services. At present, there is no cap on free transactions at own- bank ATMs, while customers can use other banks' machines up to five times a month without any extra cost. RBI has also asked IBA to issue instructions at the earliest to banks to discontinue levy of pre- payment penalty on all floating rate loans and ensure that fixed rate loans are truly fixed and are not referenced to any floating rate benchmark. Besides, banks have been asked to revisit the charges levied to ensure reasonableness, fairness and transparency in pricing. According to RBI, IBA will issue detailed operational guidelines to banks in this regard. RBI said banks and IBA will formulate apolicy on zero liability of customers in electronic banking transactions, where the bank is unable to establish customer- level negligence. " The onus of proving customer- level negligence would be on the bank and when such negligence is not established beyond doubt, the benefit of such doubt may be given to the customer. IBA and banks should strive to put in place policies, systems and processes to secure electronic banking systems, protect customer's interest to bring it ' on a par' with traditional delivery channels," RBI said. RBI also asked banks and the IBA to work together to roll out a media campaign to create awareness about products and banks' commitment to Fair Practices Codes. "The Depositor Education and Awareness Fund and banks' own advertisement budget may be used for the purpose," said RBI. RBI also asked banks and the IBA to work together to roll out a media campaign to create awareness about products and banks' commitment to Fair Practices Codes |
| New RBI rules to spur debt recast, recovery |
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SOMASROY CHAKRABORTY & ABHIJIT LELE Kolkata/ Mumbai, 31 January The Reserve Bank of Indias new guidelines on revitalising distressed assets is expected to cut the time taken by lenders in preparing the schedule for recovering bad and doubtful loans. The central bank has promised incentives for lenders to agree collectively and quickly to a resolution and bankers feel this will encourage them to reach an agreement on resolving non- performing asset (NPA) issues. The measures should also revive business for asset reconstruction companies ( ARCs), as banks can now sell standard assets having signs of stress. This will encourage the asset recast firms to revive stressed units, as opposed to only recovering the money. "We have already created a GM (general manager) post for credit monitoring. From day two of irregularity of an account, it comes under the ambit of this GM. So, we start following up the moment we detect stress in an account. The new rules will motivate banks to find an early resolution. The dialogues with customers will start as soon as stress is detected, to work out a plan. I expect the turnaround time to shorten, following these guidelines," Shubhalakshmi Panse, chairperson and managing director ( CMD) of Allahabad Bank, told Business Standard. RBI has said there will be better regulatory treatment of stressed assets if a resolution plan is underway, while provisioning requirements will be higher if no agreement is reached. Bankers feel this will help lenders in arriving at a consensus while discussing corporate loan restructuring ( CDR) packages. "Sometimes, the CDR process takes time because of the lack of consensus. RBIs new rule will encourage banks to take a common approach in resolving these cases without delay, to take advantage of the regulatory concessions," said M Narendra, the CMD of Indian Overseas Bank. Bankers felt the decision to make future borrowing more expensive for customers which do not cooperate with lenders in a resolution will also help reduce the turnaround time. "Customers will now be worried that if they do not cooperate, they might not get loans in future at affordable rates. This will also help improve credit discipline," said an executive director of a state- run bank in Kolkata, requesting anonymity. RBIs measures are also expected to increase the participation of private entities in the business of asset reconstruction. The central bank has proposed steps to enable better functioning of ARCs and introduced a more liberal regulatory treatment to banks for selling their bad assets to these companies. PRudran, managing director and chief executive of ARCIL, the country's largest ARC, said the focus would now be on reconstruction of companies. ARCIL will bring in operation experts to assist in reviving units which are a part of their portfolio. ARCIL is understood to be in talks with banks, insurance companies and foreign institutional investors to raise money under a fresh fund ( about ₹ 500 crore). Banks has also said they will now be open to asset sales to ARCs in case the restructuring mechanism fails to take off. " We expect the number of ARCs to increase. There are many instances where ARCs have been able to recover the money successfully," said IOB's Narendra. Nikhil Shah, a senior director with Alvarez & Marsal, a turnaround management company, said the new framework will allow easier change of management in stressed companies. The stressed asset management space will see a rise in activity (deals) in 2014- 15, he felt. |
| Cook it, Mr Chidambaram |
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As a result, it is not just their health but also their intelligence that is vulnerable. You can see the outcomes all around you. What should be done? The first part of the answer is simple: feed them. But then comes the hard part: should we give cooked food to the children or uncooked food to their parents as we have been doing so far and which is what the right to food law mandates? If you look around, it quickly becomes obvious that it is far better to give cooked food to the children than grains to their parents because less of cooked food is likely to leak out than the grain in the public distribution system. Cooked food also has a larger employment creation effect. Assume, for the sake of choosing from the alternatives, that Rahul Gandhi issues a fatwa on this. How would the operation be funded then? This is where corporate social responsibility comes in: mandated CSR expenditure on food for children would align the public and private interest perfectly because both would benefit from healthy and reasonably intelligent children. You don't even have to go down the moral argument route for this, which, as the debate over the right to food Bill showed, is fraught with non sequiturs. The tax rule The problem is of incentivising the private sector. This can be done through the tax mechanism and there is a precedent for allowing certain types of charities to be tax deductible. Section 80G of the Indian income tax Act allows you to deduct donations made to charitable institutions for certain donations. But it comes with certain conditions. One of them is that the amount donated in excess of 10 per cent of gross income will have to be ignored while computing the sum in respect of which deduction is to be allowed. The eligible deduction or tax break is 50 per cent of the sum computed thus. The CSR route Indian companies are currently required to spend two per cent of the average of net profits for three years on CSR. They now want a tax break on this, perhaps a rule similar to 80G. The minister for corporate affairs, Sachin Pilot, says he will see what he can do but adds that it is up to the finance ministry to say yes or no. Given that Mr Pilot expects something between ₹ 15,000 crore and ₹ 20,000 crore to be spent on CSR, and since the deduction would apply only to sums in excess of two per cent, the revenue foregone would not be much. On the other hand, if the revenue foregone is substantial but it incentivises firms to spend more on charity, it would be still worthwhile provided the CSR monies are spent on nutrition for children below the age of 10. This must be the necessary condition for availing of the tax relief. This must be the top priority, not only because we need to spend more on feeding children, but also because for relatively small outlays the long- term benefits are simply colossal. Purists would argue that the government should not tell companies where they should spend their CSR money. But they can rest assured on that score because the tax benefits would accrue only to sums spent in excess of two per cent. Below that companies would be free to spend their money as they wished. Thus, if suppose the total to be spent is, say, ₹ 20,000 crore and the tax benefit incentivises firms to spend, at a conservative estimate, an additional ₹ 2,000 crore on nutrition for children below 10, giving atax break on this sum should not be a problem. Mohandas Pai's mantra Would this work? Mohandas Pai's Akshaya Patra website says that it costs just ₹ 750 per child a year. ( In contrast, the price of branded dog food is ₹ 175 per kilo packet, which lasts less than a month). Akshaya Patra now feeds as many as 1.3 million children across nine states in 20 kitchens. This can be not only scaled up but also replicated across the country. Indeed, donations to Akshaya Patra are already under CSR. Besides, expenditure on cooked food for distribution in schools has a large investment multiplier since each large kitchen can employ as many as 300 people directly and indirectly. It is win- win — children getting fed at private expense, that too properly. We can call it the Rahul Gandhi Payt Bharo Abhiyan. In this year's Budget, the finance minister should mandate cooked food or eggs and milk for children via CSR ILLUSTRATION BY AJAY MOHANTY LINE AND LENGTH TC A SRINIVASA- RAGHAVAN |
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