Mr. Rajan’s beginning is definitely commendable. He might have travelled across the half way too quickly but covering the other half would not be easier.
“If
you can trust yourself when all men doubt you, But make allowance for their
doubting too” following lines from the poem ‘If’ by Rudyard Kipling is probably
the best message newly appointed RBI-Chief Raghuram
Rajan could convey to everyone bewildered with current economic turmoil.
Through his maverick maiden speech, he effectively addressed the hopes of each
stakeholder but how much walk of his talk will take place is something yet to
be seen.
Slew
of measures, in order to provide fresh breather to banks, have been proposed by
Rajan. For instance, well-run scheduled commercial banks do not have to acquire
permission from RBI in order to set-up new branches. Also, no fees will be
charged for this purpose. That underserved areas don’t remain neglected, RBI
will make sure that banks open up branches in those areas in
proportion to their expansion in urban areas. Apart from this, he also
emphasized to expedite the process for issuance of new banking licenses. A
committee chaired by former RBI-Chief Mr. Bimal Jalan will be looking into the
applications after an initial review and compilation by RBI staff. The process
is stipulated to be completed by Jan 2014 i.e. the new licenses should be
issued by then, if the deadline is not extended any further. In a bid to set up
robust banking structure in the country, differentiated licenses will also be
issued to small banks and wholesale banks. Large urban cooperative banks will
be converted into commercial banks.
Rajan
also took into consideration the growing Non Performing Assets of the banks due
to loan-defaults and subsequent Corporate Debt Restructuring. He took a hard
line on owners of those companies and said they do not have the divine right to
stay in charge unmindful of how badly they mismanaged their enterprises. Banks
aren’t supposed to bear the brunt of their bleak business scenario. Thus CDR
norms are certainly going to get tougher now. To the relief of cash-strapped
banks, Rajan intends to reduce their requirement to invest 23% of their
deposits in Government securities which is known as Statutory Liquidity Ratio.
It reduces the amount of cash available with banks to make loans.
For the
benefit of citizens, finally an RBI-Chief will be launching Inflation-indexed
savings instruments pegged with Consumer Price Inflation (CPI), not WPI as it
is former which reflects the actual inflation being borne by consumers. A
national grid-based Indian bill payment system will also be launched, where
households will be able to use bank accounts to pay school fees, utilities,
medical bills etc. This will make payment anytime anywhere a reality. Also, a
pilot will be conducted to enable cash payments using prepaid instruments
issued by non-banking entities and Aadhar-based identification. An application
for encrypted SMS-based funds transfer that can run on any type of handset will
also be examined by a technical committee.
Acknowledging
that access to finance for the poor and for rural small and medium industries
is hard, Point of sales devices and mini-ATMs will be set up by even non
banking entities so that financial inclusion leading to inclusive growth can be
feasible.
As
monetary policy is the first and foremost responsibility of RBI, a committee
under the chairmanship of Urjit Patel, in three months, will be suggesting
measures to strengthen the monetary policy framework. Measures such as
liberalization in forward market and internationalization of rupee etc. have
certainly spurred the confidence of investors that India is not afraid to take
bold decisions concerning with financial markets.
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