Money & Banking
How to redefine and rebuild banks for emerging demands
Banks are basically meant to allocate capital to businesses and consumers efficiently. Post demonetisation, customers feel the pain more than gain in banks. Farmers getting inadequate and untimely credit from banks take to huge private debt, only to commit suicide later. 
 
Manufacturing micro and small enterprises, the seed beds of employment and entrepreneurship, are being shown the door by the banks, notwithstanding the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) guarantee up to Rs2 crore. Banks never went beyond the mandated Rs10 lakh guarantee cover for the medium and small enterprises (MSE). 
 
A large number of customers are slapped with irrational minimum balances in their accounts and levied of penalties at will. The Reserve Bank of India (RBI) is averse to regulate such actions on the excuse that micro-management of banks is not their role.
 
With over 38% of the population illiterate, Jan Dhan and Mudra Yojana, as instruments of financial inclusion, have only become compulsive agenda for the banking sector. Banks, public or private sector, have their eyes set only on profit. Such profits are dwindling with net interest margins declining following the growing non-performing assets (NPAs). 
 
Institutional innovations like the small payment banks, India Post and their likes, as also the micro finance institutes (MFI) have also proved inadequate to meet the banking needs of the population. 
 
Cashless banking leading to poor inflow of deposits during the last four months and cashless automated teller machines (ATM) demonstrate the erosion of faith in banking in India. Bad banking and good economy cannot co-exist and, therefore, it is imperative that innovative institutional solutions should be thought of.
 
The Indian economy, targeting double-digit growth, has competing clientele bases in the current milieu of banking. Domain banking has moved to high tech banking. Executives at counters have now become slaves of the machine instead of being masters. Public sector banks (PSB) have long back forgotten their purpose, with their owner proving no better.
 
The emerging context requires that banking is redefined to meet the specificities of farming, employment, entrepreneurship, infrastructure, and international finance as distinct entities. In fact, the Narasimhan Committee (1991) suggested consolidation and convergence of the PSBs into six banks to serve the needs of the service sector, to hold government securities and for retail lending; local area banks (LABs) to cater to farmers and small entrepreneurs; an international bank to cater to the needs of exports and imports. Development finance institutions, left untouched, would fund the infrastructure sector. The Financial Sector Legislative Reforms Commission (FSLRC) also echoed the same in its report. This is the time to look at the spirit of such recommendations and rebuild the banks to regain the fast eroding trust in the banking by the large customer base of this country. 
 
Kisan Bank
 
Breaking the nexus between the farmer and politician can happen only when there is mutual trust between the bank and the farmer. The farm sector, consisting of crop farming (organic, precision, and green technologies), dairy farming, shrimp farming, poultry farming, sheep farming and agricultural marketing, by itself is inherently capable of cross-holding risks, save exceptions like the tsunamis, severe drought for long spells and typhoons. It is only in the event of such natural calamities that a Disaster Mitigation Fund should come to the rescue. 
 
The existing commercial banks should shed this portfolio in favour of regional rural banks (RRBs) and merge all the rural branches with the RRBs. RRBs should be redesigned to take to farm lending in a big way – from farm machinery to crop farming and allied sectors -- on a project basis. Insurance plays a vital role in mitigating credit risk and, therefore, the insurance products should be redesigned and modified on the lines of the South Korean model. 
 
All the rural cooperative banks (RCB) could continue their lending to the farm sector, parallel to the RRBs, as the lending requirements are huge and farmers require multiple but dedicated lending institutions. 
 
The RBI has not been comprehensive in regulating the sector. It is better that the National Bank for Agriculture and Rural Development (NABARD) is restructured to play an exclusive refinance and regulatory role over the entire farm and rural lending, consistent with its purpose of formation. Its other functions like the Rural Infrastructure Development Fund (RIDF) can be relegated to a new institution hived off from the NABARD.
 
Udyog Mitra Bank
 
Nurturing entrepreneurship and promoting employment in manufacturing are moving at snail’s space in the Start Up, Stand Up and Make-in-India initiatives. The Prabhat Kumar Committee (2017) called for setting up a National MSME Authority directly under the Prime Minister’s Office (PMO) to correct the milieu. 
 
All the MSEs should be financed by dedicated MSE bank branches. All the existing SME branches should be brought under a new regulatory institution. Small Industries Development Bank of India (SIDBI) has disappointed the sector. It has to first consolidate all its funds into just five: incubation fund; venture capital; equity fund to meet the margin requirements of MSEs when and where required; marketing fund to meet the market promotional requirements; technology fund; and revival and rehabilitation fund. 
 
SIDBI should reshape into refinance and regulatory institution for the MSME sector with focus on manufacturing and manufacturing alone. It should divest its direct lending portfolio to avoid any conflict of interest. Its present lending to real estate and non-manufacturing MSME lending should be transferred to the commercial banks. RBI, which is not currently able to cope with the regulatory burden of this sector, can transfer it to SIDBI,
 
Vaanijya Banks (Commercial Bank)
 
All the existing commercial banks – both in the public and private sector – would do well confining themselves to project finance, lending to real estate, services sector, housing, exports and imports etc. All the banks should constitute, at the board level, a sub-committee on development banking to work on the transition arrangements to the above functionality. 
 
Maulika Vitta Vitarana Sanstha (Infrastructure Bank)
 
Huge NPAs have grown from the practice of lending long with short-term resource base, coupled with lack of experience in assessing the risks in lending for infrastructure projects. ‘All the perfumes of Arabia’ (RBI’s structural debt restructuring solutions) did not cleanse the bloody hands of banks. It is time to revisit the universal banking model and re-establish an Infrastructure Bank to fund the infrastructure projects and logistic parks. 
 
These measures would help achieving growth like never before.
 
RBI and government of India could constitute a high level committee to work on the modalities for transiting to the new structural transformation of the financial sector.
 
(Dr B Yerram Raju is an economist and risk management specialist.

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The Ant Grows into an Anthill
When we first featured the ant (The Action Northeast Trust), in 2006 (Moneylife, issue dated 7 December), it was a fledgling organisation struggling, as all not-for-profits do, with issues of replicability and sustainability. 
 
But, having survived the unprecedented ethnic violence at the turn of that decade, when most of its staff and volunteers had to live in relief camps, it decided to redouble its development efforts. Reflecting an unflinching faith in one’s cause, the ant’s annual report of that year said, “The next few years will be critical for the ant as we struggle to remain humane … The trauma was real but so was the learning and healing. We hope we have become better human beings and also stronger as an institution...”
 
The ant then spun off some of its self-sustaining activities into separate organisations in order to make it self-reliant and less dependent on grants and donations. By 2005, it had set up Aagor Daagra Afad (ADA), a women-weavers’ collective for weaving and marketing of Bodo handlooms. It was an unprecedented success and doubled sales every year for the first six years. ADA then aspired to enter the retail market. Thus was born The Ants Store in Bengaluru, in 2007—a retail initiative to showcase northeast handlooms and crafts and to generate revenue to sustain livelihoods of people from that region. It also works at integrating northeast communities into mainstream India by highlighting their craft and culture.  
 
The Ants Craft Trust (TACT) evolved from The Ants Store. Smitha Murthy, designer and founder trustee of ADA says, “We could boost artisans’ confidence in their craft only if we could market their goods at a price that earned them fair wages. To create the market was a challenge and we thought Bengaluru had the right mix of population—young IT professionals with high disposable incomes and eclectic tastes.” In 2009, the reins of The Ants Store were taken over by TACT, which is registered as a trust, although not exempt from income-tax.
 
TACT’s objectives are in line with those of its parent organisation: a) to preserve and promote the social and economic well-being of weavers and crafts persons, especially tribals; b) to promote a positive identity for the entire northeast region, increase livelihoods in rural northeast, accelerate sustainability of the northeast crafts groups and to promote positive stories above its many diverse communities.
 
TACT had a young design team that worked (now, taken over by The Ants Craft Private Limited) with traditional crafts groups, infusing design innovations into their work. Traditional motifs are woven deftly on simple looms, but cater to urban lifestyles and contemporise their traditions. The designers’ inputs ensure that the craft survives and thrives. 
 
To a question about why TACT changed to The Ants Craft Pvt Ltd, Smitha says, “We soon found that our charter as a trust came in the way of our getting bank credit for working capital. And our income-generating activities came in the way of our getting a tax-exemption certificate , as a trust.” So, instead of falling between the two stools,  where the vulnerable artisans were the ones who would suffer, we decided to convert the structure of the organisation to an enterprise. Hence, The Ants Craft Pvt Ltd was incorporated on 18 March 2014 with a seven-member board of directors. Dr Sunil Kaul, one of the founder trustees of the ant and of TACT, is the chairperson of the board of directors. The board ensures that TACT’s trustees and employees hold more than 50% of the shares.
 
TACT is a great case study of an NGO spawning a social enterprise that has remained true to core objectives. As Dr Kaul says, “An ant doesn’t get overawed by any obstruction. It tries to find a way around the obstruction, to reach its destination!” You can support TACT by buying and promoting its products.
 

 

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Bogus Cancer Cures Touted Online Receive FDA Warning
Agency warns that "miracle cures" may also contain dangerous ingredients
 
A chewable vitamin C that not only wards off colds but also is a “secret weapon” against cancer. Tea bags with cancer-killing properties nearly 10,000 times stronger than chemo. And an ointment that protects against malignant growths. All priced under $50 and all available for immediate purchase online. 
 
These are among the more than 65 purported cancer treatments for both humans and pets whose marketers were recently served with FDA warning letters for making unapproved drug treatment claims. In total, 14 companies were cited (See the full list below.) The products, usually sold online, include pills, topical creams, ointments and oils, drops and devices.
 
The products also include Protandim NRF2 Synergizer, a supplement marketed by LifeVantage, an MLM that TINA.org warned about illegal health claims it found in a sweeping 2016 investigation. The investigation catalogued well over a thousand inappropriate health claims including cancer cures made by supplement marketers who were members of the Direct Selling Association. (See TINA.org’s full investigation here.)
 
“Consumers should not use these or similar unproven products because they may be unsafe and prevent a person from seeking an appropriate and potentially life-saving cancer diagnosis or treatment,” said Douglas W. Stearn, director of the Office of Enforcement and Import Operations in the FDA’s Office of Regulatory Affairs.
 
The FDA letters advise the companies to change or remove the fraudulent cancer claims or else face further legal actions, such as product seizures, injunction and/or criminal prosecution.
 
These types of “miracle cures,” which are often marketed as “natural,” may also contain dangerous ingredients, the FDA warned. The agency advised consumers to be wary of products that claim to:
  • Treat all forms of cancer 
  • Miraculously kill cancer cells and tumors 
  • Shrink malignant tumors 
  • Selectively kill cancer cells 
  • Be more effective than chemotherapy 
  • Cure cancer
Here’s the FDA’s full list of companies and products involved in the warnings:
 
 
Remember, readers, marketing supplements as having the ability to treat, cure, alleviate the symptoms of, or prevent developing diseases and disorders is simply not permitted by law. If a supplement really could do all that, then it would be a drug subject to rigorous study and testing to gain FDA approval.
 
Find more of our coverage on cancer advertising here.
 
 

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