19th March

Back to basics

The article talks about the revolution that is about to come in the Indian banking sector as RBI decides to waive-off the charges on customers for using foreign ATM network from April 2009. The first step comes up with ICICI selling off its ATM assets and POS terminals to a separate entity. 

Besides raising cash, this move would help ICICI bank to concentrate on its core banking business. With the latest RBI decision, large ATM networks are no longer a strategic advantage for banks. Same logic applies for Point-of-Sale terminals as well. In future, more banks are expected to follow the suit and it would give rise to a large independent ATM network operators. It will rationalize the ATM network management and help the banks to save costs. Most of the ATMs in the country are poorly used and third party network operators would help optimize costs by moving less used ATM machines to other areas. 

Such independent ATM operators would help reduce the costs and besides that they would be much more interested in their expansion then the banks itself who see ATM operations as non-core business.

Least Bad Option

The article talks about the tussle going on between ICAI and RBI over loan classification and the implication of bank’s relaxations on borrowal accounts over the banking industry at large. 

The tussle is an example of lack of agreement between accounting professionals and banks over the sanctity of mark-to-market rules. The relaxation in classification of borrowal accounts (as standard or sub-standard) is rightly opposed by ICAI President as it would lead to further turmoil in the banking industry. It should be understood that banks should take decisions on lending depending upon the situation of the market overall. Ventures that were perfectly feasible and profitable during boom time might not be so during the bust. Already the banks in India are seeing shrinking profit margins. At this time, large loan provisions could only harm their financial health and economy at large. Corporate debt restructuring and RBI’s recent relaxations are only the examples of these ground realities. 

ICAI is right for its apprehension, especially after the Satyam scandal, that its members would be held responsible if the provisions aren’t adequate. What should be done by ICAI is to share its apprehensions with RBI and talk about rolling back the relaxations on return of normalcy.

An antidote to recession

The article talks about the potential of elections as an employment generator and a booster to economy. 

Instead of five years, elections should be held every two years. Every election process guarantees a minimum of 90 days of employment to the people across India and boosts the revenues to number of sectors. First is the posters and banner making industry which gets real busy with their marketing business for various parties. Then the people who arrange for tents, loudspeakers and microphones for rallies. Print and media industry also gets a hell lot of masala from the election tamasha. There are also security agencies, bulk food suppliers, cooks and cleaners who benefit from the elections. From taxi owners to private jet companies, everyone get a boost by renting out the vehicle to the big shots of Indian polity. Then there are opportunities for videographers and CD owners who keep an eye on election campaigns and check for violations in EC code of conduct. 

As Rs. 10k crore is injected into the economy through this election war, it is almost half of the NREGS but still good enough to be considered as bi-annual booster shot.