Decoding first bi-monthly monetary policy for 2017-18 (Part-II)

Source: The Hitavada      Date: 24 Apr 2017 09:59:27

By Sudhakar Atre,

THE article “Decoding first bi-monthly monetary policy for 2017-18” was published in The Hitavada dated April 18, which was well received by the readers appreciating the complex subject like monitory policy for the common man. There were suggestions to deal with the other aspects of the policy. It is not possible to discuss the entire policy but certain non quantitative issues which are concerned with common man are discussed here.

1. Introduction of additional settlement batches for National Electronic Funds Transfer (NEFT):
As envisaged in the document on Vision-2018 for payment and settlement systems, the NEFT settlement cycle will be reduced from hourly batches to half hourly batches. Consequently, 11 additional settlement batches will be introduced at 8.30 am onwards, taking the total number of half hourly settlement batches during the day to 23 from 12 available at present. This will enhance the efficiency of the NEFT system and add to customer convenience. The starting batch at 8 am and closing batch at 7 pm shall remain the same, as hitherto. The step will considerably improve the speed with which NEFT transfers will be credited to beneficiary accounts.

2. Merchant Discount Rate (MDR): Rationalisation: The RBI issued a draft circular on ‘Rationalisation of merchant discount rate (MDR) for debit card transactions’ on February 16. The extensive feedback received from all stake holders is being examined by RBI. Until the issuance of final guidelines, the present instructions on MDR for debit card transactions will continue to apply.

3. Issuance and operation of Pre-paid Payment Instruments (PPIs) in India: The RBI had issued a draft circular on ‘Master directions on issuance and operation of Pre-paid Payment Instruments (PPIs) in India” on March 20, 2017. The timeline for feedback/comments has been extended unto April 15. The final guidelines for PPIs would be issued by May 2017.

4. Pilot Project on Financial Literacy: Centres for Financial Literacy (CFL): The RBI is initiating a pilot project on financial literacy at the block level to explore innovative and participatory approaches to financial literacy. The pilot project will be commissioned in nine states across 80 blocks by non-government organisations (NGOs) in collaboration with the sponsor banks.

The pilot project would be executed with the broad objectives: a) Active saving and good borrowing; b) Financial planning and goal setting and c) Going digital and consumer protection.

The CFLs would be set up under a common name, logo and Money-wise Centre for Financial Literacy. It is true that in view of large scale farmers suicides and increasing number of financial frauds like ponzy schemes, there is a great need for financial literacy but it will be interesting to note that Financial Literacy Centres (FLCs) were already established by public sector banks in each lead district vide RBI master circular RBI/2011-12/590 dated June 6, 2012 and they are already functional.

In addition, regional rural banks have also established financial literacy centres in their rural branches. It would have been better to take a review of the role played by them in achieving stated objective. Unfortunately either these present FLCs lack visibility or have failed to reach the deserving people. At least a study should be undertaken in farmer suicide prone and ponzy scheme frauds dominated districts regarding effectiveness of FLCs. Otherwise there is a reason to believe that introducing a new type of FLCs in the name of Money-wise Centre for Financial Literacy is either a NGO driven initiative as the funding will be done by RBI/NABARD or every new Governor will have his own brand of FLC.

5. Even though the policy has announced measures to boost infra and real estate sector by allowing banks to invest in Real Estate Investment Trusts (REITS) and Infrastructure Investment Trusts (InvITs) which are welcomed by all but omission to address the issue of the ailing SME sector is surprising. With the falling industrial production and increasing unemployment there is an urgent need to revive this sector as it will reduce the NPA burden of banks and boost employment instantly.

Initiatives like MUDRA loans, Make in India, and Stand up India are welcome but they will take some time to generate the employment. It was not difficult for RBI to announce some measure to address this issue when there is a liquidity surplus of Rs 4.8 lakh crore. SME associations need to borrow ideas of pursuing the RBI like real estate and infrastructure sector.