This is Indian style of framing policy and Indian style of putting policy into action. Government says excessive purchase of gold and consequent rise in import of gold adversely affects the trade deficit and current account deficit. As such in last budget government advised not to buy gold. But the same government allows banks to sell gold and fixes target for selling of gold.
Similarly finance Minister demand minimum 20% as dividend from banks on capital contributed by Government of India . When customer of a bank who parks his hard earned savings into banks as deposit and ask for higher rate of interest , government says it will add to the pain on common man , increase pressure of inflation and price rise will go beyond control.
After all banks can lend money only if the people of India keep their money in banks and banks cannot lend only by petty amount of capital contributed by government of India or by investors.
Capital only forms the minimum support level but actual resource available to banks for lending comes from deposits only.
Therefore if deposits rates fall , lending will not be possible and if lending does not grow , profit will fall down . If profit falls, how banks will be in a position to pay 20% as dividend.
Finance Minister Mr. P Chidambram has to understand this bitter truth.
Further banks were nationalised to serve common men and to enhance its social welfare activities and not to enhance profitability and not at all to sell gold or insurance policies. Banks were nationalized to bring out the farmers from the clutches of the then money lenders who used to charge exorbitant rate of interest on money lent to farmers. Now a day , in the era of reformation , the same Congress government is allowing Micro Finance Institute and NBFCs to charge much higher rate to farm loan or on loans sanctioned to small traders.
When Budget says don’t buy gold, why are banks selling yellow metal?---Business Line
MANGALORE, APRIL 16:
A customer at the Karnataka Banking Ombudsman’s Town Hall meet, on Tuesday, expressed concern over banks setting targets for selling gold to customers.
The main purpose of the Town Hall meeting was to listen to the grievances of the public with regard to instances of deficiencies and problems while dealing with the banks. Sudhir Ghate, one of the participants, said the Union Finance Minister’s Budget speech urges people to refrain from buying additional gold. “I request that banks should not sell gold. And there should not be targets for banks to sell gold,” he said.
POLICY LEVEL DECISION
Replying to this, K.C. Chakrabarty, Deputy Governor of Reserve Bank of India, said that if a bank is selling gold, RBI will not come in its way. Banning a particular activity is a policy level decision.
Stating that the issue is under examination, Chakrabarty said: “Personally I am in favour of your opinion.”
MSME SECTOR
Jayaraj Pai, president of the District Small Industries Association, said that even the industries in MSME (micro, small and medium enterprises) sector have to compete in the global market. In such a situation, he said banks must take steps to bring down interest rates. This will help the MSME sector to compete in the global market.
To this, Chakrabarty said that interest rates reflect the state of inflation of the country. When inflation rate comes down it would have a bearing on interest rates, he said.
One of the participants suggested that banks bring down rate of interest for those setting up educational institutions in rural areas. For this, Chakrabarty said that pricing of loan amount is not decided by the RBI. Individual banks take decision on this.
However, he said educationists must keep in mind that they should not charge higher fees from students after setting up such institutions.
The Chairmen and Managing Directors of Corporation Bank, Vijaya Bank and Syndicate Bank, and the Managing Director of Karnataka Bank Ltd attended the ‘Town Hall’ meeting.
Welcoming the meeting, Karnataka Banking Ombudsman Palaniswamy said the Mangalore meet is the first ‘town hall’ meet of the ombudsman in Karnataka.
Finance ministry wants 20% dividend from banks-Economic times
MUMBAI: The finance ministry, looking to raise resources to meet its revenue target, has directed all public sector banks that are grappling with bad loans to pay at least 20% dividend for the last fiscal year to boost its coffers even as banks.
In a letter to the banks last week, the ministry said they "will have to declare a minimum 20% of their capital or net profit, whichever is higher". Bank officials claim the government is desperately trying to bridge the fiscal deficit gap by directing them to pay higher dividends at a time when they fear their earnings could take a knock due to poor loan demand and rising bad loans.
"It's absurd to make such demands when banks are not doing well. It would be prudent to retain profits instead of paying steep dividends. Ultimately, the banks have to go back to the government for capital infusion," said the chairman and managing director of PSU bank, not wanting to be named. The government owns majority stakes in the PSU banks, which together enjoy a 70% market share, and, therefore, has to infuse capital into them. The finance ministry had shot off the letter after some banks approached it seeking exemption from paying high dividends.
According to data compiled by ET's research bureau, in FY12, PSU banks paid a cumulative dividend of Rs 8,550 crore. The banks, on an average, paid about 60% of capital and 15% of their net profit as dividends.
Among PSU banks, State Bank of IndiaBSE 1.98 % paid the highest dividend of Rs 2,348 crore, or 350% of its capital; Punjab National BankBSE 0.67 %, paid Rs 746 crore, or 220% of its capital. State-run banks reported net profits ofRs 41,913 crore in the nine months ended December 2012, compared with Rs 54,006 crore in the whole of fiscal year 2011-12, reflecting pressure on profits. Their profits in the fourth quarter, ending in March, is unlikely to be substantial to beat last year's figures because of rising bad loans.
According to the Budget, the government expects the Reserve Bank of India, PSU banks, financial institutions and insurance companies to jointly pay 73% higher dividend over the previous year.
It expects a dividend income of Rs 44,000 crore and the bulk of it is expected to come from the central bank.
Lighter mood :--------This is a portion of conversation between a CEO of bank and a minister
Sir do not allow private banks to pay higher rate of interest and do not allow mutual funds to give more returns than what state run banks can afford.
How will you then pay 20% as dividend on capital contributed by us?
Sir You don't worry, we know the art of inflating profit and we know how to manage auditors. Please leave it to us , we will manage , We bankers know how to make politics for survival as you politicians talk of economic for your survival.
To read detailed conversation please click on following link
SBI Chairman Cries For cut in CRR to reduce Base Rate and interest rate cut on deposits.
SBI sets CRR term to cut base rate--
The Telegraph
Mumbai, April 16: State Bank of India chairman Pratip Chaudhuri has said that if the Reserve Bank of India trims the cash reserve ratio by 1 percentage point, the country’s largest commercial bank will cut its base rate at least 20 basis points, suggesting that there is a 5:1 correlation between the cash reserve ratio and bank’s lending benchmark rate.
Hundred basis points are equivalent to 1 percentage point.
The base rate (which is the benchmark rate for most loans) is the minimum rate below which banks cannot provide loans. At present, the SBI’s base rate stands at 9.70 per cent.
Chaudhuri told reporters here today that if the RBI only brings down the repo rate after its annual monetary policy review on May 3, the country’s largest bank may either refrain from passing it on to its borrowers or bring about a marginal reduction in its benchmark rate.
“The repo rate has little impact on the base rate,” Chaudhuri said. “The only thing that impacts the base rate is CRR.”
He added a CRR cut would make a vast amount of cash available to banks and thereby reduce their need for deposits, thus paving the way for a lending rate cut.
The repo is the rate at which the RBI provides short-term liquidity to banks. It stands at 7.50 per cent. Most bankers expect the RBI to cut the repo rate by 25 basis points next month.
Last August, Chaudhuri had sparked a war of words with RBI deputy governor K.C. Chakrabarty when he argued that the CRR was an outdated concept and ought to be scrapped.
Under the CRR regime, banks have to park 4 per cent of their total deposits with the RBI on which they earn no interest.
Chakrabarty had angrily riposted; “If you are not able to do business in the regulatory system in which you are functioning… you will have to find out something else … where you can do business.”
Chaudhuri has ratcheted up the debate over CRR once again.
After the brouhaha, RBI governor Subbarao had humourously remarked: “I have appointed a committee to see if we should do away with CRR. Members of the committee will be Dr Chakrabarty and Pratip Chaudhuri. The two will be locked in a room and they can’t submit the report till my term is over.”
Chaudhuri was talking to reporters after the SBI successfully raised $1 billion through an overseas bond issue. He said the bank’s loan growth rose 21 per cent for the fiscal year ended March 31 on robust demand from companies.
He said the bank had also been successful in bringing down its gross non-performing assets during the fourth quarter because of a combination of upgradation and recovery.
The SBI, which is the lead banker to beleaguered Kingfisher Airlines, is also taking all steps to recover money from the airline.
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