Friday, June 4, 2010

Bank Licensing: Task Ahead for RBI

Finance Minister’s pronouncement for further banking license during the last budget speech marked a significant change in Indian banking sector-since last sixteen years, RBI has tried best to optimize the scale of reform in banking sector, by giving nod to UTI {now Axis Bank}for full fledged banking was the way forward in the direction of core competency.
Later entry of some more banks in 2004,enhanced the efficiency in Indian banking scenario-now the condition has changed significantly over the years as technological up-gradation have played very crucial role in meantime. Infusion of over Rs17, 000 crore on technologies since 1999 and relatively unscratched overcoming of Indian banking from global financial meltdown have paving the way for next level of transition under sound regulatory norms of RBI; so, time is opportune for banking in India to transform itself at the level of global standard.
Amidst the growing speculation, officials of RBI have in mind some basic inquisitions, like how many licenses should be issued? What should be the minimum capital requirement? Whether NBFCs should be allowed to convert into banks? Whether Industrial houses should be considered for granting banking license? Obviously for a year ahead, these concerns would cap the regulators like cloud though above all the same meticulousness and regulatory oversight will be the catalyst.
At initial level, RBI is going to post a draft guideline for both the general and expert comments by the end of July; afterwards the notice would be issued for application-in next and final stage, High Power Committee would review the applications and come out with their decisions-entire process will take at least a year.

Indeed, in all manners, RBI has to play pivotal role with its regulatory oversight-it must have to take into account the credibility of the promoter, that means no bank license for loan defaulters; RBI and Finance Ministry, both agreed on strict scrutiny of Books& Accounts ahead of issuing new licenses.
The second most imperative condition is business plan of prospective contenders, they must be asked for a long term plans of business with essential proposition to improve operations of banking Industry in India.
Anticipating the significance of a banking license in this country, contenders must have to demonstrate their vision in terms of enhancement and strengthening of banking business before and after their inclusion in banking sphere-only greed for profit sounds very unethical which hardly create incentive for the regulatory officials who have to play much larger task in terms of streamlining the financial inclusion and financial architecture of the country.

Moreover financial deepening should be and must be the priority task of India’s Central Bank {RBI}, as it forwardly entwined with the growth prospects of economy at this juncture, there wouldn’t be any denial for entry of sufficient new banks for improving the business outlook which despite making progress still lagging behind of actual turn around.
As per the RBI data, retail advances have grown from 10%to 20% of total advances, growth of return on assets from 0.4%to 1%, reduction in Non Performing Assets{NPA} from 6%to less then1%, fall in cost-income ratio from 67%to 44%-on the other side, from total 95 banks, we have 53,000 branch, only 40% people having bank accounts, 25.1 million no-frill accounts have opened in last two years-but they all hardly justified the actual potential of Indian banking which possess worth of 95%of India’s total GDP.

In 1994-95, RBI had issued 10 licenses for new banks, next time in 2003-04, numbers fallen down to merely two-with more applicants this time, RBI has flexible options to make sensible choices, absolutely number wouldn’t cross the double digit this time but its also unlikely that it would juggled beneath the five-six new licenses.
Level of capital requirements needs to be optimized as per the existing needs and better implication for banking business as it’s a crucial determinant of financial inclusion and growth. Some other issues, like granting fresh licenses rather conversion of NBFCs and retaining of RBI’s stand for not issuing the banking licenses to the industrial houses must remain intact as they don’t gives the broad view.

RBI can also contemplate to issue group licensing with limited voting rights of 10% as they would provide a diversified opportunity with group control-under present regulatory norms, especially on the wake of global recession, this could be another rational choice-there’s lot of room available for banking in India, as still around 70 million population is out of its purview, so it makes sense to tap these unexplored opportunity through introducing sufficient numbers of new banks as next course of action.
Atul Kumar Thakur
June 3, 2010, Thursday, New Delhi

Nepal: Looking for Consensus

Consensus politics as the most scarce reality, have badly disturbed the deadline of a new constitution on May28th,2010 and possibly same can happen next year in the presence of deep political divisions in Nepal.
In present assembly, Maoists have biggest stake and slightly change in their outlook have made things on streamline but the most vital aspect is Maoists inconsistent reckoning to their commitments and promises which hitherto they have failed to deliver on most of occasions.
Now Maoist’s conducive stand is making two change inevitable-first resignations of PM Madhav Kumar Nepal and thriving for a consensus government with the help of Nepali Congress and CPN {UML}, until these two changes wouldn’t take place it’s hard to assume the words of Maoist’s turning into practices.

Presently, Nepal desperately needs to align all its political forces towards the target of new constitution which is prerequisite for the further political maneuvering in the nation. Alienation from masses is another unusual area where political parties, especially Nepali Congress and CPN {UML} have to be worked hard to compete genuinely with the Maoist’s at the political arena.
In absence of strong mass back-up, these two political parties are destined to adversely juggle between Indian government and old security establishment in the country, which is an embarrassing development that never going to address the real flaws.

There is an immediate need from all quarter to understand the grimness, Nepal facing as a young democracy-it would be worthwhile to note here that transition to democracy in Nepal appeared shortly then other democratic countries, but so far, its enactment have been more prone to disappointment.
India, as a natural and most trusted ally is closely entwined with the domestic affairs of Nepal-besides sharing a long stretch of land and commonness on most of fronts,these two countries needs to upbeat on their trusted relationship and faith which built in centuries. In recent past, some unfortunate developments have come across the natural relationship between these two neighboring nation-they all derived from the misjudgment of Maoist’s towards India’s role in Nepal and their ideological compulsion which drew them closer with China.

Moreover, their premonitions with India have larger binding on domestic turf rather on international sphere as these trivial issues are hardly decisive in the India-China or any other relations from Indian point of view. India has adequate sense of some past mistakes and now anticipating to balance them by revised acts-so, in wider perspective, India and Nepal must remain closely intertwined in all crucial affairs.
Consensus among the political parties and Maoist’s attitude at large would decide the role of ousted King, who in the wake of rampant corruption and opportunism in Nepali party politics gaining unprecedented support from a chunk of citizens who stands for religious and social harmony.
Their fears are acknowledgable as they absolutely emerged from the vested power play of Maoist’s who in the name of affirmative action poised to give big jolt on the integrity of nation. Indeed, this is an unique disturbance in the history of modern Nepal when an administrative proposition is forming on the line of caste and ethnicity,worst of all with an idea of federalism for this small nation.
Amidst, those fears and uncertainty, former King Gyanendra received grand reception during his recent trip to Terai region of Janakpur and Nepalgunj {west Nepal}-peoples were shouting in Maithili “Raja aau, desh bachau {King come back, save the country}”; condition have changed dramatically in his favour, like Indira Gandhi during the 1977-80 phase, he appeared as a cementing force who brought together the diverse political parties united only by animosity towards him {Yubaraj Ghimire, All hail the King, The Indian Express, May29th2010}.

Working pattern of political parties in Nepal would decide the next course of possibility albeit the Maoist’s conception about mainstream and their prospective handling with the ambition of party cadres are going to main catalyst. Unfortunately, till now, they have been mostly subdued the national interest on the cost of party interests that will keep raising question marks on Maoist’s real intention and any endorsement they would contemplate as plan of next order.
Presently conditional alignment of parties for new constitution is only a drop in the desert; the real change would appear visible only after the lessening of intra and inter party rivalry and consensus at least for the crucial issues of national interest. Like on most of occasions, it’s indeed hard to see the next moment in Nepal…
Atul Kumar Thakur
June1st 2010, Tuesday, New Delhi