Showing posts with label RBI Governor. Show all posts
Showing posts with label RBI Governor. Show all posts

Friday, August 8, 2014

Modi’s Financial Inclusion Plan - Rupay Card News

Who pays Who benefits?


One of prime minister Narendra Modi’s ambitious plans is the massive financial inclusion drive which envisages a bank account for 150 million Indians by August 2018. The idea of financial inclusion is not new—it has been the buzzword at the Reserve Bank of India (RBI) since 2005, but without much success. In fact, several thousand new bank accounts, opened under pressure from RBI, remained dormant or did not have a single transaction. Why will it be different this time? Well, Mr Modi reportedly proposes an overdraft facility of Rs5,000 for each account, besides a RuPay debit card with inbuilt accident insurance cover of Rs1 lakh. The overdraft will be backstopped by a Credit Guarantee Fund.

Had something like this been announced by the Congress government, it would have been immediately dubbed a loan mela or another subsidy scheme. But Mr Modi’s spectacular election campaign and the 12-year Gujarat development record have ensured that doubts and misgivings remain muted.

Financial inclusion and empowering the poor is a necessity. There is no doubt at all that the poor are forced to borrow at significantly higher rates, are badly exploited by moneylenders and also forced to pay more for all goods and services. When financial inclusion was attempted though micro-finance, it led to exploitation by rapacious micro financiers, insurers and others.

Will Modi sarkar succeed in getting the same government officials to deliver where others have failed? Will moneylenders not exploit the Rs5,000 overdraft facility for repayment of old borrowings? What will the Modi government do to prevent poor, unbanked, rural folk from blowing up the overdraft, as they usually do, on marriages and religious ceremonies and on liquor?

It is significant that KR Kamath, chairman of the Indian Banks Association, while talking about how bankers were working overtime on this project said, “More than being commercially viable, it is important to link every household with the banking system.” But what happens when the overdraft has been spent and there is a default in the books of our nationalised banks? It will not only be a cost to the exchequer, but all the householders, who were recently included, will be excluded from the system again. We will watch for answers, when the prime minister unveils his grand plan for financial inclusion from the Red Fort on Independence Day.

The second phase of the financial inclusion plan talks about a pension scheme for the lower income and unorganised sector and micro-insurance through the nationalised insurance companies. Premium for insurance products will come from schemes like the Rashtriya Swasthya Bima Yogana.

A catchy name, terrific tag line, nice logo and a marketing blitzkrieg is all very well, but we would much rather hear a discussion on how the Modi government has studied and fixed all the leakages and malpractices that prevented government-directed financial inclusion and insurance schemes from working.

Instead, all we are hearing from officials and bureaucrats, desperate to please a powerful prime minister, is about the spending and hiring spree (20,000 ATMs, 50,000 banking correspondents and 7,000 branches) planned to meet the ambitious targets.

Monday, July 7, 2014

Govt Asks Banks To Issue Rupay Cards, Mastercard-Visa Feeling The Heat

In the month of May, President Pranab Mukherjee inaugurated RuPay, which is India’s first national payment gateway. Created by National Payments Corporation of India, RuPay has several advantages compared to private payment gateways such as low processing fees, data security and more.

While reporting this exciting news, to be very honest, we were quite skeptical regarding it’s adaptability and wide scale usage. Considering that it is a government owned and supported payment gateway, we assumed that it will take some time to spread and adapt.
But we were very wrong!

In a latest development, government is actively encouraging the usage of RuPay across everywhere, as they want it’s adoption to grow quickly. Such is the intensity of it’s promotion that for the first time in their 30 years of existence, global payment gateway biggies such as MasterCard and Visa are facing the heat.

As per reports coming in, Gurdial Singh Sandhu, secretary at the finance ministry’s department of financial services has asked all nationalized banks to issue debit cards which are RuPay enabled!

Rupay Mastercard visa

Normally, only one debit card is issued per account, but this time, bank officials have been categorically asked to tweak their rules, and issue one more RuPay enabled debit card which can use this new payment gateway.

Not only this, merchant establishments and traders have been specifically requested and encouraged to install sale terminals especially for RuPay enabled debit cards so that a wide scale adaption of India’s new payment gateway is made possible.

Industry experts are fearing that such official diktat from the government to nationalized banks can defer some customers to private banks as they are still using MasterCard or Visa payment gateways.
But AP Hota, MD & CEO of National Payments Corporation of India has rubbished such
apprehensions as he said, “Such fears are unfounded. RuPay is a fully functional card payment system. We are also launching Platinum cards for HNI customers.”

Nationalized banks have now been given 6 months to issue a new RuPay enabled debit card to all it’s existing customers, inform and educate all bank employees in thousands of branches all over India and send an updated report to the government regarding the adaptation and usage.

Just for information, around 2 crore RuPay enabled debit cards have been issued so far.
Last year, Indians spend Rs 80,000 crore using debit cards, and its usage is increasing at an impressive rate of 35% every year. It seems that Indian Government has donned the cap of a startup this time, and is doing everything possible to increase RuPay’s usage. If the same momentum is maintained for another year or so, RuPay can easily capture more than 80% of the market in India, and this is a bad news for private payment gateways.

What is your opinion on the increased effort of Indian government to spread the usage of RuPay? Will it backfire or will it work?

Wednesday, September 4, 2013

New RBI Governor Raghuram Rajan unveils big initial package, promises more

 

New RBI Governor Raghuram Rajan on Wednesday came out with a slew of measures, including more trade settlement in rupees to rescue the battered financial markets and hinted at a shift in focus from inflation control, doggedly pursued by his predecessor, to boosting growth.

Shortly after he took over as the 23rd Governor of the central bank, Rajan, 50, addressed the media with a prepared statement in which he laid out a detailed road map for his innings in the short term, which he called a "big initial package."

He also rescheduled by a few days the date for his much- anticipated first monetary policy statement to September 20. The new Governor set up a number of committees for revising and strengthening monetary policy framework, financial stability, financial inclusion, NPAs and an outside panel of experts headed by former Governor Bimal Jalan to screen applications for new bank licenses. Rajan said the new bank licences will be issued around January next year.

Apparently reflecting a shift in the approach from his predecessor D Subbarao, who had serious differences with the government of late, Rajan said the primary role of the bank is monetary stability to sustain confidence in the value of the rupee.

"Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures.
"...but we have two other important mandates; inclusive growth and development, as well as financial stability," he said.



Asked about Subbarao's focus on targeting inflation, Rajan said he would reserve his comments till September 20. Rajan said the bunch of reforms has been unveiled today to enhance growth.
"I think there are so many low-hanging fruits in the economy that if we only pluck them we can accelerate growth substantially." The former IMF chief economist and economic advisor to the Finance Ministry said there were some positive developments in the economy which will help to boost growth.

The measures disclosed to support the rupee include liberalisation of the financial market by enhancing the limits for exporters to re-book cancelled forward exchange contracts and opening a special concessional window for swapping foreign currency non-resident (FCNR) deposits and dollar funds. "My sense is that we certainly don't need false optimism. But I think there is good reason to believe that in the medium run, the future of the country is strong," he said.

Asked about Standard and Poor's downgrade threat, he said the international rating agency "nearly reiterated what has been its long standing claim about there being one-third possibility of a rating downgrade...it is not something new. So I won't read too much into the statement."

The measures announced by Rajan include enhancing the re-booking limit on cancelled forward exchange contracts for exporters to 50 per cent, extending a similar facility to importers and introducing cash settlement in 10-year interest rate future contracts to develop the money and G-sec markets.
Rajan indicated the RBI will take steps to reduce the Statutory Liquidity Ratio (SLR) and introduce greater regulatory and supervisory control over the domestic operations of foreign banks. He promised to give freedom to banks to open branches without prior RBI permission.

The new RBI chief also said he will steadily liberalise the markets and lift restrictions on investment and position-taking, together with Sebi, and will examine introduction of interest rate futures on overnight interest rates.









While the RBI has enhanced the re-booking limit on cancelled forward currency contracts to 50 per cent for exporters, importers will be allowed a 25 per cent limit.The central bank will push for more trade settlements in rupees and open up the financial markets for those who receive rupees to invest it back in.

Rajan said the RBI will raise the overseas borrowing limit of 50 percent of unimpaired Tier I capital to 100 per cent for banks and will introduce cash-settled 10-year interest rate future contracts.
The central bank will also examine introduction of interest rate futures on overnight interest rates; steadily but surely liberalise markets, restrictions on investments and position-taking; and issue inflation-indexed savings certificates tied to CPI to retail investors by end November.

He stressed on the need to reduce the requirement for banks to invest in government securities in a calibrated way and will push foreign banks to set up wholly owned subsidiaries.
Rajan proposes to collect credit data, examine large common exposures among banks and encourage banks to clean up their balance sheets.

Referring to the announcements, he said, "This is a part of my short-term time-table for the Reserve Bank. It involves considerable change, and change is risky. But as India develops, not changing is even riskier. We have to keep what is good about our system, of which there is a tremendous amount, even while acting differently where warranted."

He also announced a committee headed by RBI Deputy Governor Urjit Patel to strengthen monetary policy framework. The panel will submit its report in three months.




Rajan said that a committee under former Governor Bimal Jalan would screen bank license applicants after an initial compilation of applications by the RBI staff.

He said new bank licences will be announced "within, or soon after, the term of Deputy Governor Anand Sinha, who has been shepherding the process. His term expires in January 2014."
Financial sector expert Nachiket Mor will head a panel to suggest steps to promote financial inclusion. Another committee, to be headed by Deputy Governor K C Chakrabarty, will take a close look at rising NPAs and suggest steps to improve the recovery of bad debts.

"While the resumption of stalled projects and stronger growth will alleviate some of the banking system difficulties, we will encourage banks to clean up their balance sheets and commit to a capital-raising program where necessary. The bad loan problem is not alarming yet, but it will only fester and grow if left unaddressed," Rajan said.

Stressing that India is a fundamentally sound economy with a bright future, the new RBI chief said, "Our task today is to build a bridge to the future, over the stormy waves produced by global financial markets. I have every confidence we will succeed in doing that."