Indian Top
Bankers Lack Knowledge and Fail To Understand A Gentleman’s Signals - They
Only Know To Respond to Tough Talking
by
Rajesh Goyal
About 3½ years back (September 2011) I have written an article under the
heading “ Even
PS Banks Are Openly Defying RBI Signals to Control Inflation-Should RBI Not
Intervene ?”,
which is still available in our archives, wherein I had raised the question of
regular defiance of RBI Governor by CMDs of all banks.
It appears nothing has changed in these 3½ years, except that the cycle of
interest rate has reversed.
At that time, In above article I have clearly indicated as to how CMDs of PS
Banks as well as Private Sector banks are not ready to fall in line with the
signals being given by RBI Governor at that time to raise the Base Rate to fight
the inflation. These CMDs had the guts to show RBI Governor thumbs down.
Having failed to make them understand the need of the nation, RBI Governor
deregulated Saving Interest rates in October 2011. With this single stroke, he
made all the defying banks to run for cover. They are still struggling to come
out of that shock as PS bank’s CASA is falling, and banks who took the call to
increase their SB interest rates have been successful in increasing their share
of CASA. Till date PS banks and big private sector
players have failed to read the writing on the wall that SB interest rates too
needs to readjusted to market trends.
Now again in 2015, when RBI Governor reduced Repo Rate twice in quick succession
and sent signals to CMDs of private as well as public sector banks to reduce
their Base Rate, all of them, without exception, ignored him.
It seems these top bankers either failed to read the
signals of the regulator or their inflated egos led them to believe that RBI
Governor is helpless fool and they can do whatever they wish to do.
Finally on 7th April, 2015, the day when First Bi-monthly Monetary Policy
Statement for 2015-16 was announced by RBI Governor, he made it clear that
there will be no further cut as top bankers have failed to follow up with
corresponding rate cuts in Base Rates. These bankers were given sufficient
time to hold their Asset Liability Committee (ALCO) meetings and realign their
Base Rates based on new costs etc. During this period they could have reduced
their Deposit Rates to fall in line with the decreasing inflation as per signals
given by RBI by reducing Repo Rates. However, no such thing had happened.
Disgusted
with
such
attitude
of CMDs
of both
public
and
private
sector
banks,
RBI
Governor
was
forced
to show
his
tough
side
and
pointed
out
that
“Transmission
of
policy
rates to
lending
rates
has not
taken
place so
far
despite
weak
credit
off take
and front loading
of two
rate
cuts.
With
little
transmission,
and the
possibility
that
incoming data will
provide
more
clarity
on the
balance
of risks
on
inflation,
the
Reserve Bank will
maintain
status
quo,” He
dismissed
the
logic of
these
CMDS and
said it
was
“nonsense”
to
assume
that
cost of
funds
has not
fallen
and
nudged
them to
reduce
rates.
He even
had to
add that
earlier
the
banks
cut rate
the
better
it would
be for
the
economy.
Thus, in
nutshell,
he
minced
no words
in
retorting
the
banking
top
bosses
for
their
inflated
egos and
attitude
towards
the
regulator.
Having been bashed for their attitude, these big guns immediately came into
action and by evening SBI, ICICI Bank, HDFC Bank rushed to announce reduction
in their Base Rate by the same evening itself.
This is one part wherein it becomes absolutely clear that all these big guns do
not understand the basic methodology to be adopted in fixing the Base Rate. It
will be pertinent to ask these CMDs, whether Base Rate has to be lower or
increased when they get a dressing down from the regulator OR or based on
certain calculations as prescribed by RBI. Anger shown by RBI Governor
prompted these CMDs to come into action and reduce the Base Rates by same
evening (it was a day when RBI has maintained status quo in Repo Rates and all
other policy rates). It would
have made a better sense that these CMDs / MDs / CEOs had read the signals
earlier when Repo Rates were reduced and reworked their costs and then fixed
their Base Rate accordingly.
The funniest part of all these news was a statement by Ms Arundhati Bhattacharya.
I had high regards for her as I felt she to be much better knowledgable as she
is from SBI. It was a surprise for me to read her statement given to CNBC-TV
18, wherein she said, “(We) May also cut one-year bucket deposit rate by 25
basis points. We want to see whether this (15 bps cut) gives a fillip to
credit growth which is what we would like to see and depending on how that pans
out we will take a call going forward."
As far as my knowledge goes, Base Rates are calculated based on cost of
deposits, and not on the expansion of the credit. Thus, instead of reducing
the Base Rate in a jerk manner, SBI should have first reduced the rate of
interest on deposits, resulting in lower cost of funds and then on revised
calculations, Base Rate should have been reduced by holding a proper discussions
in the Asset Liability Committee (ALCO).
I know few people will raise doubts about my knowledge as I took VRS at a much
lower level as compared to CMDs. However, one thing is clear that if I am
wrong than RBI Governor is also wrong. If these CMDs were right, then they
should not have caved in to the RBI Governor’s bashing, rather have produced
evidence as to show as to how cost of funds has remained stable inspite of two
cuts in Repo Rate.
The present Indian banking seems to be driven by sweet will of CMDs / MDs / CEOs
rather than on analysis and cost calculations
They do not adopt a consistent policy to arrive at Base Rates although RBI has
prescribed the same. They can cut Base Rates without any calculations if they
get a bashing from RBI Governor or else they can make fool of the public by
keeping EMIs on higher side as per their own sweet will.
Let us pray, God Save Indian Banking Industry
SalOURCE"allbankingsolutions.com
