After Net neutrality, now how about bank neutrality-LiveMint-By Sreeram Sivaramakrishnan
If you have found yourself opening a salary account, have you wondered why you are forced to do so?
Most of us would have been avidly following the latest debate on Net neutrality. And some (like me) would also have signed the online petition supporting it and sent our responses to the Telecom Regulatory Authority of India on the discussion paper. Net neutrality is all about making sure that access to the Internet is non-discriminatory. We do not want to be guided—insidiously or otherwise—to make our choices, especially, if someone is profiting from it. Something similar has been happening in the banking domain for several years, but I haven’t heard anyone talk about it. Let me outline the phenomenon.
Typically when someone joins a company, among the various formalities that one has to complete is the inevitable pain of opening a new salary account with the bank of the employer’s choice. Some employers manage to provide a basket of banks for the employee to choose from. If you have an account with one of the banks, you can simply mention the account details and it will become the salary account and perhaps make you eligible for benefits such as no balance requirements. Most employers, however, would simply mandate that you open an account with a designated bank.
If you have found yourself opening a salary account, have you ever wondered why you are forced to do so? Most employees who join a company would like to keep things amicable and not ask uncomfortable questions at the beginning of their stint. Hence, they do not ask why they should be forced to open the account.
If some brave souls were to dig deeper, they would realize that the employees are part of the deal whereby the company gets certain benefits from the bank. In other words, the company has actually bartered the employees’ accounts and relationships with the bank for benefits such as higher interest rates on fixed deposits, better term loan rates or a higher overdraft limit. Another way of looking at this is that companies have been agents of the bank. Banks have been using companies to do mass acquisitions of accounts while incentivizing the companies with sweeteners on the corporate accounts.
The company line to the employee will be that opening the salary account makes it easier for the company and the bank to transfer salaries and benefits seamlessly to the employee’s account. And you may smell a rat but you will leave it at that.
With the advent of National Electronic Fund Transfer (NEFT), this is actually no longer an issue. Companies simply instruct their banks to transfer the money through NEFT to other bank accounts held by employees. All that is required is a list provided by the company to the bank. If there are bank charges involved, the company can charge the employee for this service.
Today every time someone changes a job (and this happens much more frequently now than before) the employee has to open an account. Who does this benefit?
According to the company, it is the employee who benefits. The company takes credit for having bargained a deal with the bank whereby the bank provides a salary account where there is no balance required and also certain other benefits such as better interest rates on fixed deposits and loans.
But there is a price to pay for the employee. Usually people do not close an account held earlier due to commitments such as equated monthly instalments (EMIs) of loans, which may be linked to it or for other reasons such as mutual fund or demat account linkages. The employee, thus, ends up splitting her savings balances across multiple accounts. And, therefore, may not be in a position to get benefits from consolidating balances at one bank. Also, employees have to remember to transfer money from their salary accounts to their main account. Many EMI misses are attributed to this, so banks actually mandate that their borrowers only link their electronic clearing service instructions for payment of their EMIs to their salary accounts.
From a systemic perspective, every salaried individual has multiple accounts in the banking system which artificially inflates the number of accounts and increases overload on most banking systems. This also leads to more transactions—most of them superfluous—which load our transaction heavy systems. Many of these salary accounts which are no longer in use have to be weeded out of banks’ systems. Several banks carry out an annual conversion and closure exercise. A lot of these accounts also fall dormant, and face the risk of fraud. All this amount to costs which may be difficult to estimate but are totally unnecessary. So, getting the same person to open multiple accounts across banks is a highly inefficient practice.
It is high time the Reserve Bank of India and other authorities (including perhaps the ministry of corporate affairs) clamped down on this practice and allow for bank neutrality.
And what would bank neutrality mean to me? Companies should give new employees a choice between opening a new salary account or to have their salaries directly transferred to their existing accounts through NEFT. Even if the latter is at a charge, many salaried people would be glad to bear it. A quick poll that I did on Facebook seemed to suggest that most people would love to have the choice, and 50% would be okay with a Rs.25 charge per month for this service. Further, banks should be forbidden from using companies or institutions as agents directly or indirectly in this fashion, especially, where the employee is forced to open the account.
Sreeram Sivaramakrishnan is associate professor at School of Business Management, Narsee Monjee Institute of Management Studies.
China makes big cut in bank reserve requirement to fight slowdown -Zeenews
Beijing: China`s central bank on Sunday cut the amount of cash that banks must hold as reserves, the second industry-wide cut in two months, adding more liquidity to the world`s second-biggest economy to help spur bank lending and combat slowing growth.
The People`s Bank of China (PBOC) lowered the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 percent, effective from April 20, the central bank said in a statement on its website www.pbc.gov.cn.
"Though the growth in the first quarter met the official target of around 7 percent for 2015, the slowdown in several areas, including industrial output and retail sales, has caused concern," said a report published by the official Xinhua news service covering the announcement.
The latest cut, the deepest single reduction since the depth of the global crisis in 2008, shows how the central bank is stepping up efforts to ward off a sharp slowdown in the economy.
"The size of the cut is more than expected," said Shenwan Hongyuan Securities analyst Chen Kang.
"It`s going to release around a trillion yuan (in liquidity) at least."
Weighed down by a property downturn, factory overcapacity and local debt, growth is expected to slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014, even with expected additional stimulus measures.
However, the last RRR cut was seen as more defensive by some economists, as it served primarily to offset increasing capital outflows that were exerting a drain on the money supply, making it difficult to guide real lending rates down.
Indeed, Chinese bankers have proven resistant to extending more credit, saying they are also under orders to maintain profitability and reduce the amount of bad loans on their books, but their intransigence appears to have frustrated Beijing.
Premier Li Keqiang publicly exhorted banks to lend more to the real economy during a visit to major banks on Friday.
On the corporate side, executives say they are wary of embarking on fresh investments, given weak demand and weakening producer pricing power.
As a result think-tanks and advisers to the government are polarising into those calling for more stimulus to arrest the slowdown and a rival camp emphasising structural reforms as the route to sustainable growth.
"The amplitude of the reduction reflects a more aggressive policy signal," said Xie Yaxuan, macroeconomics research director at China Merchants Securities.
"The reduction should help make up for the negative growth of foreign exchange in the first quarter, which created a hole in the monetary base," he said.
The central bank also announced targeted RRR cuts; an additional 100 bps cut for rural credit cooperatives and village banks, as well as a 200 basis point cut for the China Agricultural Development Bank, one of China`s major policy lenders.
The PBOC last cut the RRR for all commercial banks by 50 basis points on Feb. 4, the first industry-wide cut since May 2012.
The central bank has also cut interest rates twice since November in a bid to lower borrowing costs and spur demand, but while short-term money rates have come down in recent weeks, long-term lending to the real economy has not shown much sign of reaction.
"Real interest rates are extremely high, and they are also quite high relative to returns," said Arthur Kroeber, head of research at Gavekal Dragonomics.
"RRR has been at twenty percent for a long time, and that has created room for it to go down further."
The People`s Bank of China (PBOC) lowered the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 percent, effective from April 20, the central bank said in a statement on its website www.pbc.gov.cn.
"Though the growth in the first quarter met the official target of around 7 percent for 2015, the slowdown in several areas, including industrial output and retail sales, has caused concern," said a report published by the official Xinhua news service covering the announcement.
The latest cut, the deepest single reduction since the depth of the global crisis in 2008, shows how the central bank is stepping up efforts to ward off a sharp slowdown in the economy.
"The size of the cut is more than expected," said Shenwan Hongyuan Securities analyst Chen Kang.
"It`s going to release around a trillion yuan (in liquidity) at least."
Weighed down by a property downturn, factory overcapacity and local debt, growth is expected to slow to a quarter-century low of around 7 percent this year from 7.4 percent in 2014, even with expected additional stimulus measures.
However, the last RRR cut was seen as more defensive by some economists, as it served primarily to offset increasing capital outflows that were exerting a drain on the money supply, making it difficult to guide real lending rates down.
Indeed, Chinese bankers have proven resistant to extending more credit, saying they are also under orders to maintain profitability and reduce the amount of bad loans on their books, but their intransigence appears to have frustrated Beijing.
Premier Li Keqiang publicly exhorted banks to lend more to the real economy during a visit to major banks on Friday.
On the corporate side, executives say they are wary of embarking on fresh investments, given weak demand and weakening producer pricing power.
As a result think-tanks and advisers to the government are polarising into those calling for more stimulus to arrest the slowdown and a rival camp emphasising structural reforms as the route to sustainable growth.
"The amplitude of the reduction reflects a more aggressive policy signal," said Xie Yaxuan, macroeconomics research director at China Merchants Securities.
"The reduction should help make up for the negative growth of foreign exchange in the first quarter, which created a hole in the monetary base," he said.
The central bank also announced targeted RRR cuts; an additional 100 bps cut for rural credit cooperatives and village banks, as well as a 200 basis point cut for the China Agricultural Development Bank, one of China`s major policy lenders.
The PBOC last cut the RRR for all commercial banks by 50 basis points on Feb. 4, the first industry-wide cut since May 2012.
The central bank has also cut interest rates twice since November in a bid to lower borrowing costs and spur demand, but while short-term money rates have come down in recent weeks, long-term lending to the real economy has not shown much sign of reaction.
"Real interest rates are extremely high, and they are also quite high relative to returns," said Arthur Kroeber, head of research at Gavekal Dragonomics.
"RRR has been at twenty percent for a long time, and that has created room for it to go down further."
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