Quotes Slip

The way different banks react differently to the inspectors of the Reserve Bank of India (RBI)s Department of Supervision (DoS) is quite curious. DoS officials are responsible for ensuring that banks follow the RBI rules in letter and spirit, and that no violation of rules takes place.

On one hand, the chairman of a leading private sector bank expressed extreme unhappiness at the role these inspectors play. He feels that the whole exercise is nothing more than harassment, and even describes some of the queries put across by the inspectors as quite meaningless.

On the other hand, a foreign banker described RBI inspectors as intelligent and smart. They come with laptop computers and finish their reports on the spot, he says. As for the queries, he says that any departure from rules, small or big, must be pointed out. Otherwise, what are they employed for?

 

Many banks have found a way out of these brainstorming sessions. They have begun trying to induct DoS officials as their employees with the sole purpose of taking care of RBI queries. Incidentally, is this leading to an exodus from DoS? If recent happenings are any indicator, this scenario may not be too far off. As many as three middle level DoS officers (at the AGM level) are believed to have recently left the central bank to join foreign banks as compliance officers. This is a tidy arrangement, where foreign banks and even the new private sector banks use the expertise of persons who have seen the game from one side, and use it now for the benefit of the other side. In return for a fatter pay packet, of course.

Gilt ordeals

The Securities Trading Corporation of India (STCI) had instituted a market survey to assess the retail market for government securities. The primary findings of the survey are not too encouraging, according to STCI sources. The lack of liquidity in the secondary market continues to bother prospective investors. The survey covered provident fund organisations, small corporates and NBFCs. Of these, the PF organisations are unhappy at the fact that the Reserve Bank of India (RBI) has withdrawn the SGL facilities for them. They are not happy with the special deposits facilities offered to them instead. And there is also a related problem of timely payment of interest. The complaint is that the public debt office (PDO) of the RBI takes an unduly long time to issue interest warrants.

Sticking to ones knitting

Its not just the foreign institutional investors, but public sector banks, too, that are waiting patiently in the wings to enter the insurance sector. In fact, banks like State Bank of India, Bank of Baroda and even Dena Bank have approached leading consultancies to help them chalk out concrete plans for their insurance business. One of these consultancies is said to have advised these banks against getting into direct insurance, and counselled them to stick to distribution instead. Thats considering the fact that distribution could well be one of their strengths, given their wide network. Sticking to distribution could make sense in another way, since the Banking Regulations Act will also have to be modified if banks are to get into the direct insurance business. And how long this will take is anybodys guess.