oct 2012 by satish · 1 per cent to 1.5 per cent. this is in part a reflection of the slower growth...

THE BANK R TO EVERY NDI NE

I A

October 2012

THE BANKER TO EVERY INDIAN

Highlights of Previous IssuesJuly 2012

What's behind India's Investment Weakness?

Empowerment of Staff: A Roadmap

Ms. Paromita GhoshAssistant (Banking) North Eastern Circle

Profitable Financial Inclusion Model Shri Umesh Chandra SahuManager (Systems), IT Services Department, Chandigarh LHO

Legal Decisions on Banking Smt. K.K.SethulakshmiDy. Manager (Law), Law Section, SBI, Administrative office, Ernakulam

Ms. Laura PapiAssistant Director, (Asia and Pacific), International Monetary Fund

August 2012

September 2012

Legal Decisions on Banking Smt Sudha RadhakrishnanManager (Law), State Bank of India, Corporate Centre, Mumbai

Society, Economic Policiesand the Financial Sector

Shri YV Reddy Former Governor, Reserve Bank of India, (2003-08)

Shri Pratip ChaudhuriChairman, State Bank of India

India's Financial Sector: Case for a Level Playing Field

Dr. Duvvuri SubbaraoGovernor, Reserve Bank of India

State Bank Staff College Golden Jubilee Celebrations

Empowermentof Staff: A Roadmap

Shri Renjith Kumar BAssistant, State Bank of India, Alleppey Main Branch, Alappuzha

Banks' exclusion from the commodity derivatives market in India – A case of missed opportunities

Shri Debojyoti DeyEconomist, Multi Commodity Exchange of India, Mumbai

The Pursuit of Complete Financial Inclusion - The KGFS Model in India

Ms. Bindu Ananth

Mr. Gregory Chen

Mr. Stephen Rasmussen

President at IFMR Trust, Kanagam Village, Taramani, Chennai

Regional Representative for South Asia, CGAP,

Regional Manager Asia, CGAP

Shri Hemant ContractorMD & GE (IB), State Bank of India

Sustainable Excellence Through Engaged Customers, Employees And Right Use Of Technology

Shri A. Krishna KumarMD & GE (NB), State Bank of India

Challenges of Inclusive Banking

Legal Decisions on Banking Shri M. ManoharanManager (Law), Law Department, State Bank of India, Local Head Office, Chennai

Profitable Financial Inclusion Models Shri Pulak Kumar SinhaGeneral Manager (Payment Solutions), New Businesses Department,Corporate Centre, Mumbai

State Bank of India Monthly Review October 2012

T E BANKER TO Y NDH

EVER I IAN

SBI Monthly Review Editorial Committee

1. Dr.Brinda Jagirdar GM, ERD, SBI, CC, Mumbai

2. Shri S.D.Kelkar GM, Law Dept, SBI, CC, Mumbai

3. Shri Atul Kumar DGM, Vigilance Dept, SBI, CC

4. Dr.A.R.Chansarkar AGM (Economist), ERD, SBI, CC, Mumbai

5. Shri Bharat B. Sharma AGM, ERD, SBI, CC, Mumbai.

6. Shri V.S. Dikshit Chief Manager, ERD, SBI, CC, Mumbai

7. Shri Sumit Jain Dy. Manager (Economist), ERD, SBI, CC, Mumbai

8. Shri M.Ramachandran Asst.Manager (Systems), ERD, SBI, CC, Mumbai

Views expressed in the State Bank of India Monthly Review are not necessarily those of the State Bank of India or its Associates.

14

24

31Language and intentin Banking Communication

Shri Karthikeyan NairDGM (Vigilance), LHO Kerala

Basel II Norms and IndianBanking Sector: Future Prospects

Dr. Poonam BishtFinance Executive, Earnest & Young, Mumbai

Shri Pratip ChaudhuriChairman, State Bank of India

Role of India in Asia'sFinancial Growth

03

Legal Decisionson Banking

41Shri Ajith R.Manager (Law)Law Department, SBI, CC, Mumbai

Dr. C. RangarajanChairmanPrime Minister's Economic Advisory Council

THE BANKER TO EVERY INDIAN

Monthly Review I October 2012

03

It gives me great pleasure to be in your midst at the Concluding Session

of FICCI-IBA Banking Conclave. I am happy to know that over the last

three days you have discussed in some detail the various issues

confronting the Indian banking system. I am sure that these discussions

would help you in your resolve to make the Indian banking system more

efficient, productive and customer friendly.

1991 is an important landmark in the post-Independent Indian economic

history of our country. It is an equally important landmark in evolution of

the Indian banking system. Financial sector reforms were introduced as

part of the liberalisation process. These reforms were aimed at

enhancing the viability and efficiency of our banking system. While the

rapid growth of the Indian banking system in terms of geographical

diversification was well recognised, the banking system in 1991 was

weak in terms of net worth and profitability. It needed rejuvenation.

This was provided by the banking sector reforms. By dismantling the

administered interest rate structure, by reducing the prescriptions in the

form of CRR and SLR, by introducing prudential norms, by

recapitalising public sector banks, by injecting a greater element of

competition in the system through new banks as well as induction of

private sector in the public sector banks and by revamping the system of

regulation and supervision we have succeeded in creating a banking

system that is more safe and sound.

There is no doubt that the financial sector plays a critical role in any

2 Valedictory address by Dr. C. Rangarajan, Chairman, PMEAC delivered on 6th September 2012 at FICCI-IBA Conclave (FIBAC 2012) held at Mumbai.

State Bank of India

04

economy. Financial institutions, instruments and markets which

constitute the financial sector act as a conduit for the transfer of financial

resources from net savers to net borrowers. Institutionalisation of

savings and investment leads to augmentation of savings and better

allocation of resources. The gain to the real economy therefore depends

on how efficiently the financial sector performs the basic function of

intermediation. Financial sector development and economic

development have a mutually interacting beneficial effect. The one helps

the other. With respect to financial sector development and more

particularly banking development, there are two possible scenarios. One

is supply leading and the other is demand following. In the first case,

banking institutions come first into existence and then create the demand

for their services. In the second scenario, banking institutions are set up

to meet an emerging and existing demand. In the banking development of

our country, we have seen both types of phenomena operating.

The Indian financial system comprises an impressive network of banks

and financial institutions and a wide range of financial instruments.

There is no doubt that there has been a considerable widening and

deepening of the Indian financial system, particularly in the last two

decades. The extension of banking and other financial facilities to a

larger cross-section of people stands out as a significant achievement.

As a ratio of GDP at current prices, bank deposits increased from 18 per

cent in 1969–70 to 45.3 per cent by end-March 1995, and now stand at 73

per cent. All indicators of financial development, such as the 'finance

ratio', 'financial interrelations ratio' and 'intermediation ratio', have

significantly increased, highlighting the growing importance of financial

institutions in the economy and the growth of financial flows in relation

to economic activity.

The Indian banking system has emerged strong as a result of the reforms

introduced since early 1990s. However, as we go ahead, there a few

challenges to which I would like draw your attention.

Challenges Ahead


05

Capital Adequacy

Maintaining adequate capital has become imperative. In a globalised

financial system, every country has to conform to international

standards. The Basel III guidelines drafted after taking into account the

lessons learnt from the recent crisis have emphasized on both the quality

as well as quantity of capital maintained by banks to strengthen the

resilience of banking sector. The redesigned regulatory framework calls

for higher quantum as well as better quality of capital. The minimum

equity capital requirements have in fact been increased to 7 per cent

(inclusive of 2.5 per cent of capital conservation buffer) of risk weighted

assets as against the requirement of just 2 per cent under Basel II. The

new requirements have triggered a serious debate over the impact they

may likely to have on economic growth as well as the profitability of

banks. Different studies show different conclusions based on differing

assumptions.

In a globalised financial system, every country has to conform to

international standards. The Basel III guidelines drafted after taking into

account the lessons learnt from the recent crisis have emphasized on

both the quality as well as quantity of capital maintained by banks to

strengthen the resilience of banking sector. The redesigned regulatory

framework calls for higher quantum as well as better quality of capital.

The minimum equity capital requirements have in fact been increased to

7 per cent (inclusive of 2.5 per cent of capital conservation buffer) of risk

weighted assets as against the requirement of just 2 per cent under Basel

II. The new requirements have triggered a serious debate over the impact

they may likely to have on economic growth as well as the profitability

of banks. Different studies show different conclusions based on differing

assumptions.

The Indian banking system remains well capitalised. The capital

adequacy ratio for all scheduled commercial banks is now estimated at

14.17 per cent, well above the required 9 per cent. This high ratio means

that the implementation of even Basel III standards will not pose much

difficulty at least initially. However, it needs to be noted that the capital

requirements consequent upon the introduction of Basel III norms as

State Bank of India

06

well as the growth in credit consistent with a rapid economic growth of 8

to 9 per cent will require fairly large amount of capital to be injected.

According to the recent Annual Report of RBI, in order to achieve the

full Basel III implementation by March 31, 2018 the public sector banks

would require common equity to the tune of Rs. 1.4 to 1.5 trillion on top

of internal accruals and in addition to Rs. 2.65 to 2.75 trillion in the form

of non-equity capital. Similarly, major private sector banks would

require common equity to the tune of Rs. 200 to 250 billion on top of

internal accruals and in addition to Rs. 500 to 600 billion in the form of

non-equity capital. The estimates for common equity capital may turn

out to be an underestimate. While the private sector banks will have to

meet these requirements by accessing capital markets, public sector

banks will require additional budgetary support. Under the present

dispensation, about 50 per cent of the additional capital requirements in

the case of public sector banks will have to come from the government.

While several innovative suggestions have been made for raising the

capital, it is quite evident that the capital infusion by the government will

remain large and has to be a continuous process and as such a long term

programme will have to be drawn up. Otherwise, the market share of the

public sector banks will come down. In addition, banks will have to

perform in such a way that they will be in a position to attract the required

capital from the market. Investors' confidence in the banks' performance

must be built up.

Besides the capital adequacy ratio, the other important indicator of the

soundness of the banking system is the level of non-performing assets.

The asset quality of the Indian banks has improved over time with the

gross and net NPA ratios showing a continuous decline. The gross NPA

of all scheduled commercial banks came down from 14.6 per cent in

March 1999 to 2.25 per cent in March 2008. However, there is some

concern about the deterioration in asset quality in the last two years.

Gross non-performing assets of the public sector banks increased from

2.3 per cent at the end of 2010-11 to 3.2 per cent at the end of 2011-12.

This is indeed a significant increase. In net terms, the ratio went up from

Quality of Assets


07

1 per cent to 1.5 per cent. This is in part a reflection of the slower growth

of the Indian economy. In any economic downturn, asset quality

deteriorates. In the wake of the international financial crisis in 2008,

banks were allowed to restructure the debt of firms. The restructured

loans at the end of 2011-12 stand at 5 per cent of the loans outstanding.

Because of the slow growth, some of the restructured debts are in

difficulties in restructuring. The Indian banking system is also exposed

in a big way to certain sectors such as power and aviation which are not

doing well. Further, banks need to watch out for liquidity risks which

will increase because of maturity mismatches. Increased exposure to

real estate and infrastructure will lengthen the maturity of bank assets.

The challenge for banks lies in efficiently managing risks both in the

upswing and downswing.

If the Indian banking system is to remain competitive over time, there

should be periodic entry of new banks; a closed system can only become

oligopolistic. The 'threat' of entry should not therefore be eliminated, and

the central bank should lay down entry norms as also decide on who

satisfies the criterion of 'fit and proper'. It must be noted that new banks

take about two decades to achieve a sizeable level. Our decision on how

many new banks to be licensed must be based on what the economy will

need not today but over the next several decades.

Financial Inclusion, a term which has received much attention lately has

many dimensions. First, it relates to bringing the economic and socially

vulnerable sections into the ambit of the organized financial system.

Second, it denotes inclusion of all sectors of the economy; agriculture,

industry and services. Third, it implies the extension of the organized

financial system to all geographical regions. Thus, it has social, sectoral

and regional dimensions. However, the term financial inclusion has

largely been used in the context of providing finance to the bottom

deciles of population.

NSSO data reveal that 45.9 million farmer households in the country

Entry of New Banks

Financial Inclusion

State Bank of India

08

(51.4%), out of a total of 89.3 million households do not access credit,

either from institutional or non-institutional sources. Further, despite the

vast network of bank branches, only 27% of total farm households are

indebted to formal sources (of which one-third also borrow from

informal sources). Farm households not accessing credit from formal

sources as a proportion to total farm households is especially high at

95.91%, 81.26% and 77.59% in the North Eastern, Eastern and Central

Regions respectively. Thus, apart from the fact that exclusion in general

is large, it also varies widely across regions, social groups and asset

holdings. The poorer the group, the greater is the exclusion. What is true

of the banking system must be true in relation to the provision of other

financial services.

Financial exclusion is also caused by demand side issues. Unless steps

are taken on the demand side that is in the “real sectors” mere supply side

solutions from the financial sector will not work. Credit is necessary for

this, but not sufficient. Credit has to be an integral part of an overall

programme aimed at improving the productivity and income of small

farmers and other poor households. Putting in place an appropriate credit

delivery system to meet the needs of marginal and sub-marginal farmers

must go hand in hand with efforts to improve the productivity of such

farm households.

As far as banks are concerned, financial inclusion has two dimensions:

(a) providing deposit and payment facilities to the disadvantaged and

underprivileged, and (b) providing credit facilities to such people. In

some ways, it is easier to tackle the former than the latter. Technology has

facilitated improved facilities for depositing and withdrawing cash. The

business correspondent model, combined with new technology, should

be able to extend banking facilities to the interiors of the country and to

the existing unbanked. The provision of credit facilities to low income

peoples, however, is a much harder task. Once credit is granted, business

correspondents can take over, but the grant of credit itself requires some

fundamental changes in the way the rural bank branches function.

In order to increase the outreach of the banking sector, the Reserve Bank

has permitted banks to use the services of specified institutions and


09

individuals as intermediaries for providing banking services. However,

this scheme is yet to gather full momentum. In fact, the appointment of

well-chosen individuals holds out the best promise in this regard. The

emergence of corporate entities as business correspondents has both

positive and negative features. While corporates with large retail

network can bring in larger resources and higher organizational strength,

the local touch which is very much required for the success of the scheme

may be absent. While large corporates or technology service providers

may try to employ local people, it is not clear at this point how successful

they will be. The appointment of one business correspondent to transact

on behalf of several banks can also create conflict of interests and lack of

commitment. However, one critical issue in the effective use of this

model revolves around as to who should bear the additional transaction

costs resulting from the employment of facilitators and correspondents.

This, of course, depends upon the level of use. When large transactions

such as those involved in NREGA are entrusted to the banks with

compensation, the scheme can take off easily. There has to be some

flexibility with respect to the charging of transaction costs. In the

interests of overall expansion of financial inclusion, while all efforts

must be made to minimize the costs, we cannot overlook the fact that

there are legitimate transactions costs which the system must be willing

to bear. Beating them down even through competitive bidding may turn

out to be counter-productive. If necessary, government must become

part of the burden sharing arrangement.

The current international financial crisis has important lessons for the

management of the financial system in general and for the banking

system in particular. Regulation has emerged as a major factor in

maintaining the solvency of individual financial institutions and

preventing systemic risk. What stands out glaringly in the current crisis

is the regulatory failure in the developed world. The failure was two-

fold. First, some parts of the financial system were either regulated

loosely or not at all, leading to 'regulatory arbitrage' with funds moving

more towards the unregulated segments. Examples of 'soft-touch'

Regulation and Innovation

State Bank of India

10

regulation are investment banks, hedge funds and rating agencies.

Second, there was an imperfect understanding of the implications of

various derivative products. In addition, regulators failed to recognise

the limits of financial markets.

It is ironic that such a regulatory failure should have occurred at a time

when intense discussions were being held in Basel and elsewhere to put

in place a sound regulatory framework. There is a degree of consensus on

how the regulatory framework should be reshaped.

Apart from protecting individual financial institutions, there is a greater

focus on limiting systemic risk, which is defined as widespread

disruption to the provision of financial services. In view of this, efforts

are on to identify macro-prudential indicators - which include aggregate

indicators of imbalances, indicators of market conditions, and matrix of

concentration of risks in the system - and the appropriate tools aimed at

containing systemic risk. The macro-prudential instruments that are

used commonly fall into three categories: (a) tools to address threats

from excessive credit expansion in the system, (b) tools to address key

amplification mechanisms of systemic risk, and (c) tools to mitigate

structural vulnerabilities and limit spillovers from stress.

As I mentioned earlier, the development of the financial system is

considered crucial to sustaining high economic growth. However, in the

wake of the current international financial crisis some questions have

been raised whether the unfettered development of the financial markets

and products is good for the economy. It has been argued that not all

financial innovations are welfare maximising. Thus the recent financial

crisis has forced us to reevaluate the size, role and rate of growth of the

financial sector.

Banking development has taken big strides in the last two decades. The

basic motivation for inducting new financial products is to improve

customer satisfaction. A question that is being asked increasingly is

whether the financial sector today is inherently more volatile and

vulnerable than before. The very factors that have contributed to the

growth of the financial sector may well have contributed to increase


11

fragility. Close interdependence among markets and market participants

have increased the potential for adverse events to spread quickly. They

have increased significantly the scope for and speed of contagion. Some

question whether the new financial products serve any socially useful

purpose. The Stiglitz Commission said, “Much of the recent innovation

in the financial system has sought to increase the short-run profitability

of the financial sector rather than to increase the ability of financial

markets to better perform their essential functions of managing risks and

allocating capital. In addition, innovation has engendered financial

instability. Indeed from the point of view of the economy as a whole,

some innovations had a clearly negative impact”. It would be

inappropriate to classify all or even most of the financial innovations

introduced in the last few decades as socially unproductive. Many of the

financial products satisfy a felt need. We are living in a world of

uncertainty. Customers need to protect themselves from the volatility in

exchange rates and interest rates. Appropriate hedging mechanisms are

therefore needed. It is the function of an efficiently organized financial

system to provide these instruments. It is wrong to argue that the

economic growth seen by the industrially advanced countries in the

recent period particularly in the last decade and a half has not been

helped by the improvements in the financial markets. But excesses in

any field have their own dangers. There is no argument that the

regulatory regime needs to be restructured to make the banking system

more sound. Excessive risk taking and leveraging by banks need to be

discouraged by appropriate regulatory measures or controls. Of course,

there is the larger question whether the financial sector is growing at a

rate highly disproportionate to the growth of the real sector. On this

again, there is no consensus. Financial assets as a proportion of GDP

vary widely across countries. Some argue that an important determinant

of demand for financial services is the nature of the firms engaged in real

economic activities. In particular, when firms with low levels of cash

have high investment opportunities, they are unable to use current

earnings to finance their new ideas. This naturally leads to growth in the

financial sector, to enable the transformation of these idea-rich, cash-

poor firms into engines of economic growth. Conversely, when firms

State Bank of India

12

1

with high levels of cash are the main source of investment opportunities,

we should expect low growth in the financial sector, since ideas and cash

reside in the same entities. In developing economies like India the

structure of the economy is undergoing rapid change. The financial

system must be able to meet the diversified needs of a growing economy.

In this context, we must actually encourage financial innovations. For

example, in the Indian context, I would like to cite two instances. First,

there is the need to encourage the emergence of a vibrant corporate debt

market. Efficient debt market will help not only large industries but also

small and medium enterprises. A number of suggestions have been made

to create an efficient debt market in our country. Apart from other things,

we will also need institutions which will serve as market makers offering

two way quotes. This will provide the required liquidity to the market and

make it attractive to the investors. Second, there is the need to explore

innovative ways of financing infrastructure. Banks at present have certain

limitations. They have to take care of the mismatch in liability and asset

management. Of course, a vibrant debt market will also help investors'

need for long term funding. 'Take out financing' has been suggested as one

way by which the tenure of loan can be increased. Thus the scope for

financial innovation continues to remain wide in India. We need to draw

appropriate lessons from the current international financial crisis. Too little

regulation may encourage financial instability but too much of it can

impede financial innovations which are badly needed.

Regulatory oversight of innovations is necessary. But the regulatory

perspective on innovation must not become too restrictive. In short, the

policy makers must strike an appropriate balance between the need for

financial innovations to sustain growth and the need for regulation to

ensure stability. Financial innovations and regulations must go hand-in-

hand in order to ensure growth with stability in real and financial sectors.

In many ways, the coming decade will be crucial for India. If India grows

at 8-9 per cent per annum, it is estimated that her per capita GDP will

increase from the current level of US$ 1,600 to US$ 8,000–10,000 by

2025. Then, India will transit from being a low income to a middle

Conclusion


13

income country. For this to happen, the Indian banking sector must

develop so as to meet the needs of this diversifying economy, and assist

the transition. A competitive environment is essential to make the

banking system cost-efficient. Adequate availability of services to

customers, both as depositors and borrowers, must remain the driving

force. Obviously, regulation is important to steer the banking system

towards prudence and stability, but within this regulatory umbrella we

must nurture a competitive banking system that will deliver efficient

services at minimal cost.

State Bank of India

14

Backdrop

India has adopted a new economic paradigm involving integration with

the world economy in a market-friendly and consistent manner,

beginning with rebalancing of the state - market mix in 1991. This was

because of the realization that the relatively inward-looking growth

model adopted since independence in 1947 had become inappropriate to

deal with globalization and associated technical changes. The proximate

cause of the adoption was however the severe macro - economic crisis,

particularly in the balance of payments.

The 1991 crisis was, however, turned into an opportunity for

restructuring, deregulating and liberalizing the economy. At around the

same time India initiated a 'Look East Policy (LEP)' to revitalize the

civilizational and economic links with the rest of Asia, particularly with

ASEAN, China, Japan and South Korea. During this period India also

strengthened its relations with Russia, and has been taking steps to

deepen its engagement with the Middle East, Africa, and Latin America.

The period since India adopted the new economic paradigm and the LEP

has witnessed substantial transformation of its global relations,

including with the rest of Asia. This was driven by the recognition of

India's increasing capacities to address its developmental challenges,

and the potential to play a larger role in the global economy, which would

provide substantial commercial opportunities. Creditably, India has been

able to sustain high levels of growth without any crisis. In fact, one can

Shri Pratip Chaudhuri2

Chairman, State Bank of India

2 This article has also been published in FICCI's. Financial Foresight (Q2 FY12-13)

Volume 3, Issue 2,


15

confidently say that India has no parallel in managing relatively peaceful

and democratic transfer of political and economic power among

different social classes.

Asia's rapid growth implies that by 2050 it could converge with average

global living standards. Asia would no longer be a "poor" region, but an

average region, in income terms, with a range of advanced and middle

income economies.

Asia accounts around 60% of the world population, 30% of the world

area and 30% of the world GDP (in PPP terms) as of 2011. Asia

registered an annual GDP growth of 5.8% in 2011 and is projected to

grow at 5.4% in 2012 and 5.8% in 2013, which is impressive considering

growth in the world economy was 3.8% in 2011 and projected to grow at

3.3% in 2012 and 3.6% in 2013.

Asia in 2050

2011 2012 P 2013 P

Asia 5.8 5.4 5.8

World GDP 3.8 3.3 3.6

Industrial Asia 1.3 2.3 2.3

Australia 2.1 3.3 3.0

Japan -0.8 2.2 1.2

New Zealand 1.3 2.2 3.1

East Asia 8.2 7.3 8.0

China 9.2 7.8 8.2

Hong Kong 5.0 1.8 3.5

Korea 3.6 2.7 3.6

Taiwan 4.0 1.3 3.9

South Asia 7.1 6.8 7.2

Bangladesh 6.5 6.1 6.1

India 6.8 4.9 6.0

Shri Lanka 8.3 6.7 6.7

ASEAN 4.5 5.4 5.8

Source : IMF WEO Oct 2012; P; Projection

Asia and Global Growth (%)

In this scenario, Asia's GDP would increase from around $18 trillion in

2011 to $148 trillion in 2050, or half of global GDP. With a per capita

State Bank of India

16

India as a major growth driver in Asia's growth

Asia's rise will be led by China, India, Indonesia, Japan, Republic of

Korea, Malaysia and Thailand. In 2011 these seven economies had a

combined total population of 3.1 billion (78% of Asia) and a GDP of

$14.2 trillion (87% of Asia). By 2050 their share in Asia's population is

expected to fall to 73%, while their share in GDP would rise to 90%.

These seven economies alone will account for 45% of global GDP. Their

average per capita income of $45,800 (PPP) would be 25% higher than

the global average of $36,600.

In a report by PwC, China will overtake the US to become the world's

largest economy by 2020, which in turn will be overtaken by India in

2050, due to its demographic dividend, robust growth rate and better

investment climate.

Linkages through Merchandise Trade

The volume of world merchandise trade rose 5.0% in 2011, accompanied

by global GDP growth of 3.8%. This marked a significant slowdown

India's Trade Linkages with Asia

GDP of $38,600 (PPP), Asia in 2050 would have incomes similar to

Europe today.

2010 2020 2030 2040 2050

Global output 62 90 132 195 292

(market exchange rates, US $ trillions)

Asian share of global output 27.40% 33.50% 38.90% 44.50% 50.60%

Global growth -- 4.00% 3.90% 3.80% 3.60%(prior decade ending in column year)

Asia growth -- 5.80% 5.20% 4.80% 4.40%

Asian share of global growth -- 55.70% 59.30% 62.80% 66.00%

capita (PPP, in $) 10,700 14,300 19,400 26,600 36,600Global GDP per

6,600 10,600 16,500 25,400 38,600Asian GDP per capita (PPP, in $)

Source : Asian Development Bank

Asia in 2050


17

from 2010, when trade advanced 13.8% and output expanded by 5.3%.

The share of Asia's exports and imports in the world's total exports and

imports in terms of volume stood at 31%.

India had the fastest export growth among major traders in 2011, with

shipments rising 16.1%, followed by China at 9.3%. The share of India

and China's exports in global exports are 1.2% and 10.7% respectively.

Reflecting their large trade linkages with Asia, China's share in Asia's

exports was as high as 34.3% in 2011, while India's share was 5.4%.

Merchandise Trade by Region (Annual chg in volume)

Exports Imports

2009 2010 2011 2009 2010 2011

World -12.0 13.8 5.0 -12.9 13.7 4.9

Asia -11.4 22.7 6.6 -7.7 18.2 6.4

China -10.5 28.4 9.3 2.9 22.1 9.7

Japan -24.9 27.5 -0.5 -12.2 10.1 1.9

Source : WTO

India -6.0 22.0 16.1 3.6 22.7 6.6

Linkages through Commercial Services Trade

In tandem with a sharply expanding services sector, global commercial

services exports grew by 11% in 2011 to US$ 4.1 trillion.

In case of Asia, commercial services exports grew by 12% to $ 1.1

trillion. The share of Asia in total commercial services exports stood at

26.4%, showing that a quarter of commercial services exports are

accounted for by Asia.

State Bank of India

18

The growth in commercial services exports in Asia (11% in 2011), was

mainly driven by India, where commercial services exports grew by

20%. India contributes 13% of Asia's commercial services exports, next

only to China (17%). With consistent 8.0% plus growth in India's

services, it is estimated that India will surpass China by 2020.

Commercial Services Trade by Region (Annual % chg)

Exports Imports

2009 2010 2011 2009 2010 2011

World -11.0 10.0 11.0 -11.0 10.0 10.0

Asia -11.0 23.0 12.0 -10.0 21.0 14.0

China -12.0 32.0 7.0 0.0 22.0 23.0

Japan -14.0 10.0 3.0 -12.0 6.0 6.0

Source : WTO

India -13.0 33.0 20.0 -9.0 45.0 12.0

Trade in Good and Services (value in $ b n, 2011)

Merchandise Commercial

Trade Services

Exports Imports Exports Imports

World 17,779 18,000 4,150 3,865

Asia 5,534 5,568 1,096 1,091

China 1,899 1,743 182 236

Japan 823 854 143 165

Singapore 410 366 125 110

Source : WTO

India 297 451 148 130

India's Trade with Asian Trade Blocks

India established a "Look East Policy" in the early 1990s following its

adoption of economic reforms and the end of the Cold War, but this

policy gained steam only in last decade. India's role in East Asia, NE Asia

and South Asia is becoming more pronounced as it strengthens relations

and trade links with China, seeks closer economic and political ties with

South Asian nations, and places special emphasis on building strategic

ties with Japan.


19

India Trade with Asia (in $ bn)

2000 - 01 2009 - 10 2010 - 11

Exports Imports

2.9 4.1 18.1 25.8 25.6 30.6ASIAN (6.5%) (8.2%) (10.1%) (8.9%) (10.2%) (8.2%)

East 0.5 1.1 1.7 13.0 1.9 11.6Asia (1.1%) (2.3%) (0.9%) (4.5%) (0.8%) (3.1%)

NE 6.3 5.6 28.9 53.5 37.2 76.1Asia (14.1%) (11.1%) (16.2%) (18.5%) (14.8%) (20.6%)

South 1.9 0.5 8.4 1.6 11.7 2.1Asia (4.4%) (0.9%) (4.7%) (0.5%) (4.6%) (0.6%)

44.6 50.5 178.7 288.3 251.1 369.7India (100%) (100%) (100%) (100%) (100%) (100%)

Source: Department of Commerce;Figures in parentheses represent share in exports and imports

Exports Imports Exports Imports

In the last decade, India trade (exports + imports) with East Asian

countries rose eight-fold (from $1.6 bn in FY'01 to $13.5 bn in FY'11)

although imports grew faster than exports.

India's trade ties with North-East Asia are the most important and robust.

With trade of merely $ 11.9 bn in FY'01 it increased to $ 113.3 bn, almost

ten times. India's trade with the ASEAN countries increased from $ 7.0

bn in FY'01 to $55.6 bn in FY'11, an 8 fold increase.

India's Financial Linkages with Asia

Linkages through Banking: As of end-Mar'12, there are 41 foreign

banks from 24 countries operating in India. These banks had 323

branches in FY'12, against 309 branches in FY'11 and 302 branches in

FY'11. Most of the foreign bank branches in India are those of Asian

Banks, which had a share of 30.6% in 2011-12.

Indian bank branches operating in Asia were 89 in FY'12, out of total 165

branches operating world-wide, forming 53.9% of the total global

operations.

State Bank of India

20

Foreign Banks' Operations in India and OverseasOperations of Indian

Foreign Banks' BranchesOperating in India Operating Abroad

2009 - 10 2010 - 11 2011 - 12 2009 - 10 2010 - 11 2011 - 12

85 88 99 76 81 89ASIA

Honk Kong 50 50 50 17 18 18

Singapore 10 12 12 15 16 17

Europe 67 69 69 6 6 6

UK 101 103 106 25 28 30

US 49 49 49 7 8 8

Others 0 0 0 31 32 32

Total 302 309 323 147 155 165

Asia's Share 28.1% 28.5% 30.6% 51.7% 52.2% 53.9%

Source: RBI's Report on Trends and Progress 2011 - 12

Foreign Banks' Branches

In recent years, it has been seen that the demand for bonds issued by

Indian banks seems to be coming from Asian countries. For example,

Asian investors lapped up more than 75% of Union Bank's bonds, SBI

placed over 45% of its bond issuance with Asian investors, while ICICI

Bank placed 46%. All the recent transactions saw major investments

from Asia followed by US-based investors. Close to half the investment

in the last few issuances now come from within Asia.

Linkages through Capital Flows: Capital flows have also fueled

globalization around the world, which is facilitated by liberalization of

the capital account in the emerging economies. Capital inflows are aided

by both “push” and “pull” factors. The push factors have included low

interest rates globally, slow growth and lack of investment opportunities,

and deregulation that has allowed greater global risk diversification in

industrial countries. The pull factors have included robust economic

performance and improved investment climate in emerging Asian

economies, resulting from a series of trade, financial sector and legal

reforms and other economic liberalization measures.

Capital flows to Asia have rebounded so far in 2012, following the sharp

retrenchment in portfolio equity flows late last year. From August 2011

onwards, global risk aversion spiked in response to escalating turmoil in


21

the euro area, and investors fled to safe havens globally. In Emerging

Asia, this caused a large withdrawal of foreign equity investments,

plunges in regional stock markets, sharp currency depreciations, and a

shortage of U.S. dollar funding. Stresses in local banking systems also

emerged, with credit default swap spreads on some banks in Australia,

China, Hong Kong and Japan increasing to record or near-record highs.

India is one of the highest portfolio-investment receiving countries in

Asia and obtained FII inflows of $18.8 bn in 2012 so far (till 21st

Sep'12); other Asian peers include Indonesia ($1 bn), Philippines ($2.18

bn), South Korea ($12.81 bn), Taiwan ($1.54 bn), Thailand ($2.15 bn),

and Viet Nam ($18 mn). Incidentally, according to World Bank data,

India is the top recipient of remittances in the world; in 2011, India

received $64 bn as remittances followed by China ($63 bn), Mexico ($24

bn), and the Philippines ($23 bn).

The challenge that India and Asian economies face over the medium

term is to ensure that more of capital flows come in the form of FDI and

goes into sectors such as infrastructure and manufacture. It must also go

into other sectors like agriculture, healthcare, education, etc. that are

important for building sustainable growth that India and other Asian

economies are targeting over the medium term.

� Technological change and productivity: Asian technology has

reached or is close to the global cutting edge in many areas of

electronics, computers, information technology services,

communications, pharmaceuticals and biotech and promises

technology's spread to other Asian countries. After all, the closer to

the source of the innovation, the faster its adoption.

� Demographics and labor force: In the last two decades, the world

has benefitted from a demographic dividend. The number of people

aged 20-64,traditionally taken as the labor force, has been growing.

In fact, about 560 million people were added to the global labor force

in the 1990s, and almost 640 million more people between 2000 and

2010. That dividend is now slowing, and will lose steam by 2035.

Future of Asia's Growth

State Bank of India

22

Asia's labor force has been growing at 2.0% a year over the last two

decades. In the next two, that will be halved to 0.9% a year. In the two

following decades (2031- 2050), growth of Asian labor force will

likely become flat.

However, the demographics of Asia's giants, China and India are very

different. China's labor force is still growing, albeit more slowly than

before, and will also probably peak around 2020. India, by contrast,

still has a young population, and its labor force will continue to grow

before reaching nearly one billion workers by 2050. India will then

have 25% more workers than China. So, the demographic dividend of

India will induce higher economic growth than China in the coming

years.

�Capital deepening: Notwithstanding the huge investment rates of

countries like China and India in recent years, most of the world's

capital stock, about 70%, is in advanced economies. Small European

economies, like Switzerland, Norway, Denmark and Finland, have

the highest capital stock per worker in the world. Japan also has a

capital stock per worker above the developed country average. Asia's

challenge will be to augment its capital stock and at the same time,

step up its productivity.

�Climate change: Climate change is arguably the single most

important issue which has long-term implications. It could affect

each and every human being on our planet, irrespective of his or her

country, income, or race. With over half of the world's population

residing in Asia and the Pacific, Asians have more at stake in the well-

being of the planet than any other people.

�From growth to social well-being: So far, Asian policy makers have

emphasized social stability as the foundation of economic growth.

Many have thought of social stability and economic growth as a

virtuous cycle. One underpins the other. That has certainly been

Asia's historical experience, but it may need reconsideration as Asian

societies become more affluent in future and inequalities become

wider.


23

Conclusion

References

Asia's growth and larger footprint in the global economy will bring new

challenges, responsibilities and opportunities. The region will need to

take greater ownership of the global good, including an open trading

system, stable financial system, climate change, and peace and security.

It will need to play a bigger role in global rule-making and be an active

participant in the constructive formulation of the rules. While framing its

domestic and regional policy agenda, the region as a whole, but also the

larger economies like China, India, Indonesia, Japan and Korea, will

need to take into account the wider regional and global implications.

How the region manages its rapidly rising role in global governance in a

non-assertive and constructive way and emerges as a responsible global

leader, will be closely watched by the rest of the world.

1. Asian Development Bank (2011), 'Asia 2050: Realizing the Asian

Century', ADB Report 2011.

2. Asian Development Bank (2012), 'Asian Development Outlook

2012', ADB Report April and July update 2012.

3. Dr. Y V. Reddy (2006), 'Asian perspective on growth - outlook for

India', lecture at G-30 International Banking Seminar Monetary Authority

of Singapore, Singapore, on 18 September 2006.

4. International Monetary Fund (2012), 'Regional Economic Outlook: Asia

and Pacific Managing Spillovers and Advancing Economic Rebalancing'

IMF, April 2012.

5. Mukul G A (2007), 'India's Rising Role in Asia', Lecture delivered at the

89th Annual Conference of the Indian Economic Association.

6. World Trade Organisation (2012), World Trade Report: Trade and

public policies - A closer look at non-tariff measures in the 21st

century' WTO 2012.

State Bank of India

24

Reforms in the Indian Banks have been long drawn with continuous

improvements to accomplish International standard for Indian Banks to

be globally acceptable. The recent development in this regard is

implementation of Basel I norms followed by Basel II norms, which has

to be further improvised by implementing guidelines of Basel III norms.

The main financial risks faced by banks are namely Credit risk, Market

Risk and Operational risk. Since the Credit risks are fully quantifiable,

the Loss Function was devised to facilitate the quantitative analysis of

the Credit Risks.

Where the net losses suffered by a bank were arrived at by taking the

difference between the Gross NPAs and the Net NPAs. The different

explanatory variables of the above Loss Function are: where, L denotes i

net Losses which is aggregate losses suffered by the banks as a result of

various types of risks which are represented by explanatory variables

enclosed in parenthesis on right hand side of the equation, A denote the i

asset-base of the banks, M denote the total volume of bank credit, r i i

denote the interest rate, C denote capital adequacy ratio of the banks, Si i denote the credit spread of the banks, Pi denote the composite risk index

of the banks, u denote the random error term and ƒ denotes the functional i

form. The variable Pi in the above equation denotes the composite risk

index based on major risks faced by the banks, identified as credit risk,

market risk and operational risk.In order to enable meaningful

L Mi i A Ai i

= f ; r ; c ; s ; p : u i i i i i

Basel IINorms and Indian

Banking Sector :Future Prospects


25

comparisons across different banks, the study divides the Net Loss and

the Volume of Credit of each bank by its own Asset Base. The database

included the abovementioned financial details of the banks in three

different sectors, namely, 27 PSBs, 20 Private Banks and 18 Foreign

Banks operating in India are included for the purpose ( having net worth

above 500 Crores) for financial years 2006-07 and 2009-10 on which

regression on Panel data was conducted.

The banks in all three sectors under regression have indicated the

following inferences:-

�The rate of interest emerged as the most significant of the variables

exerting a negative impact on the net losses of the banks for obvious

reasons, since a higher rate of interest on a bank's lendings reduces its

margin of net loss.

� Second in the line of significance emerged the Capital Adequacy

Ratio on its impact on the net losses.

� To a certain extent the variable of the credit spread of a bank also

reduced its net losses.

In view of the quasi-regulatory monetary framework pursued by the

Indian banking sector each bank has little ability to manouvre the

abovementioned variables and hence in order to minimize its Credit

Risksa bank has to resort to some alternative model of finding its optimal

capital adequacy requirements .

The main policy suggestions include various measures to minimize

and/or overcome the main financial risks mentioned above which are

faced by a bank.

� The suggestion to implement of a Model of Optimal Capital

Adequacy Requirements which was propounded by Wall and Peterson

(1987, 1995) for those banks which maintain their capital requirements

equal or above the minimum specified by the Financial Regulator. This

model operates at a micro level for each individual bank and it has been

successfully implemented by the Spanish Savings Banks so far. This

As regards the Credit Risk:

State Bank of India

26

model illustrated that Optimal Market Capital Ratio is directly related to

costs of deposits, variability of capital ratio and variance of error term;

whereas it is inversely related to risk free rate. This reflects that a high

level of banking demand for capital will be associated with high costs of

deposits and a high variability of capital ratio. For a given level of risk

free interest, the higher the deposit interest is, the lower will be the

liquidity premium depositors will be willing to pay. This would reduce

the incentive for the banks to capture debt. The sign of variability of

capital ratio indicate that the greater dispersion of retained earnings

(main source of capital in savings banks) of the bank is, the greater the

issues for other capital like subordinated debt, hybrid debts capital

instruments in order to avoid a bank in becoming bankrupt.

� Further, this Study has also devised a simple Credit Risk Index based

on the Default Probability of a bank's loans along with its statistical

distribution.

E(R/A) = [(1-D) M/A (1+r) t] – [D (M/A) (1+r) t ] – C1

M denotes the amount of credit which a bank is supposed to extend to

any borrowing entity at the rate of interest: r, for the time-horizon: t. If D

denotes the probability of that entity committing a default in its

repayment of the extended credit amount within the stipulated period.

The probability D can be arrived at by the past credit history and

financial soundness of the particular borrower and/or through market

intelligence. Then, (1-D) will denote the probability that the same

borrower meets the stipulated schedule. In order to work out the

expected return of the bank per unit of its asset we consider the quantity:

M/A and the corresponding returns to the bank: R/A. t denotes the time 1

duration of default. Usually, t is lesser than t. In case if t =t then the loss 1 1

suffered by the bank in terms of its returns is maximum, where C denotes

the total cost of estimating the default probability through the following

process and r denotes the PLR plus margin charged by a bank on loans.

In order to minimize the default probability we differentiate with respect

to X … X and equate the first partials to zero as under:1 n


27

The solution to above eqn. provides a vector of values for X … X which 1 n

minimize the default probability D.

�It is also suggested that the main Credit Rating Agencies operating in

India be brought under the purview of an institutional mechanism along

the lines of the Nationally Recognized Statistical Rating Organization

(NRSRO) operating in the US, in order to eliminate any possibility of

biases creeping in the Credit Rating Process and that these agencies must

be under the payroll of the banks rather than the individual borrowers.

� It strongly advocates mandatory disclosures of the actual Value-at-

Risk (VaR) figures by all the Indian banks to provide a correct insight to

all the stakeholders. The above recommendation on basis of finding of

(Jason Ball & Victor Fang), where they used publicly disclosed VaR of

the banks have concluded three important results. Firstly publicly

disclosed VaR helps the banks in capturing relationship between the

market risk of trading portfolio and its impact on following period's beta.

Further, VaR explained and established a positive relationship between

both the returns to shareholders and to bondholders in the following

period.

�This Study suggests a Penalty-cum-Incentive Approach to be

implemented in the Indian banks since such an approach was suggested

during the early 1990s by the then outgoing Chairman of the Indian

Banks Association to act as a safeguard against the acts of commissions

and omissions on the part of the officials of the banks. This approach has

to be undertaken after having agreement between trade union, Indian

Banking Association and RBI officials.

As regards the Market Risks:

As regards the Operational Risks:

axn1 = 0

e

1 + e

ax11 = 0

e

1 + e

X

X

X

X

State Bank of India

28

Basel III on Indian Banking Sector:

It is observed in the light of the recently advocated new Basel-III Norms,

wherein a stricter approach increases the capital adequacy requirements

by further including a mandatory capital conservation buffer of 2.5% and

a discretionary counter-cyclical buffer of 2.5% of the capital to be

maintained during the periods of high credit growth to be utilized during

the periods of economic downswings.

Based on Basel III frameworks, even RBI has released guidelines for

Indian Banks on 2 May, 2012 Implementation of these guidelines will

begin from January 1, 2013 and the process will be completed by March

31, 2018.

� Banks required to maintain a minimum 5.5% in common equity (as

against the current 3.6%) by March 31, 2015

� Banks to create a capital conservation buffer (consisting of common

equity) of 2.5% by March 31, 2018

� Banks to maintain a minimum overall capital adequacy of 11.5%

(against the current 9%) by March 31, 2018

� Conditions stipulated to increase the loss absorption capacity of

banks' Additional Tier I; Banks not to issue additional Tier I capital to

retail investors

� Risk-based capital ratios to be supplemented with a leverage ratio of

4.5% during parallel run

� Banks allowed to add interim profits (subject to conditions) for

computation of core capital adequacy

� Banks to deduct the entire amount of unamortised pension and

gratuity liability from common equity Tier I capital for the purpose of

capital adequacy ratios from January 1, 2013.

Highlights


29

Impact on Indian Banks:

Table 1: Additional Common Equity Requirements of Indian

Banksunder Basel III

RBI estimates that Indian Banks would need an additional capital

requirement of Rs.5 trillion, of which non-equity capital will be of the

order of Rs 3.25 trillion while equity capital will be of the order of Rs

1.75 trillion (table 1).

(In billion)

A. Additional Equity

B. Additional Equity Capital Requirement under Basel II 650 - 700 20-25 670 - 725

C. Net Equity Capital Requirement under Basel III (A-B) 750 - 800 180 - 225 930 - 1025

D. Of Additional Equity Capital Requirement under Basel III-- -- --

for public - Sector Banks (A)

Government Share 880 - 910 -- --(if present shareholding pattern is maintained)

Government Share 660 - 690 -- --(if shareholding pattern is brought down to 51 per cent)

PrivatePublic Sector TotalSector Banks

Banks

Capital Requirement under Basel III 1400 - 1500 200 - 250 1600 - 1750

Basel III requires higher and better quality capital, which will eventually

increase the cost of equity capital for Indian Banks. Further, there is

likely hood that the loss absorbency requirements on the non-equity

regulatory capital will increase its cost.

Of late, several leading economists and financial reports have expressed

their learned opinion vis-à-vis such high capital requirements which

increase the costs and erode the profitability of the banks and may

eventually threaten the very existence of the smaller banks in India. It

has been observed that the newly proposed Basel-III Norms are even

stricter than the BIS Norms. It has also been reported that in order to

maintain the capital requirements along the lines of those suggested

Contextual relevance of the above suggestions to Indian Banking

Sector:

State Bank of India

30

under the Basel-III Norms, the Govt of India will be required to pump in

a huge sum of over Rs.2.7 lakh crores in the Indian PSBs. Surely, in the

background of severely strained fiscal resources and huge deficits such

an act will not be financially prudent.

It is observed that till date most of Indian Banks already maintain CAR

higher than statutory requirement. In this context the suggestion given

by this study may perhaps serve greater purpose in enabling the Banks to

maintain Optimum Capital requirement without endangering their

profitability. Under this scenario perhaps the measures suggested by this

study may become more relevant in the present context.


31

In the days of manual banking and non-speed clearing, COS 72 was the

most regular communication sent to customers. The COS 72 was a

printed form designed for precise and terse communication to the

customer about debits or credits to his account. The printed line would

begin: “I beg to advise having credited/debited your account ……….”

followed by four or five blank lines for handwritten messages to

customers. Fully understanding the design behind COS 72 about the

need to be as terse as possible in their communication with customers, the

staff often used to fill in the blank lines with messages reading “your SC

125 paid” or “OD interest recovered on DDP 82/234 returned unpaid”.

Customers with heavy transactions had no option but to visit their branch

with the COS 72 advices for understanding these messages.

Apart from why send messages that customers have to visit branches to

understand, the question that would come to a newly joined

officer/employee of the Bank (before he became conditioned by the

sheer familiarity of seeing the advices), was always the unintended

obsequiousness of the words “ I beg to advise”. A printed form designed

for maximum economy of words should avoid ' beg to' also. It is said that

beg to is an archaic way of conveying politeness. Many customers may

have found irony in the Bank's intent to be polite as COS 72 advices were

often illegibly handwritten and confusing if the customer could decipher

what was handwritten after the printed lines I beg to advise…

State Bank of India

32

COS 72 was perhaps not meant to impress Bank's customers by being

neat or distinctive. Unfortunately the same printed cum handwritten

form of advice went to every customer irrespective of the value of his

relationship. As the forms were ubiquitous in every seat, COS 72 also

became most routinely used for almost any type of communication with

the customer.

Customers do not expect literary flourishes in the communication they

receive from the Bank. Still presentation, legibility and orderliness are

important and these qualities in communication definitely enhance the

Bank's image among its customers. The incomprehensibility of

handwritten entries in passbooks and statements of account used to be a

frequent reason for customer complaints. Many entries would have no

details other than the word 'To' against each debit and 'By' against each

credit and the only way customer could reconcile the entries was by

reconciling the amounts in the debit and credit columns with the

counterfoils that he may have diligently kept.

With transactions computerized and passbooks computer printed and

customers increasingly relying on the Internet to access their accounts,

customers no longer complain about incomprehensible communication

from their branches in this area. But the casual approach to written

communication continues to create problems in areas like loan

documentation. It would be rare to see an arrangement letter with

complete details of the borrower and guarantors written and with the

interest rate, repayment terms and particulars of security legibly and

correctly entered. The borrowers do not complain more because of the

trust they repose in the Bank not shortchanging them on interest rate or

charges.

Still many officers have come to grief when loan accounts have become

non-performing and their casual use of language in compiling opinion

reports or in describing the collateral security is not seen as casual but

deliberate attempt to mislead. The credit worthiness of the borrower or

the suitability of the property or the availability of stocks is often


33

commented upon with a single word 'Satisfactory'. What is sought to be

conveyed by the Officer when he wrote 'satisfactory' is never made clear.

'Satisfactory' acquires ominous overtones for the Officer when the

account becomes non-performing and external investigating agencies

find the collateral or stocks overvalued or missing.

The purpose of communication is to inform, interpret or instruct. There

is reluctance among staff to invest the time and effort necessary for

purposeful communication and to avoid words that have ceased to

convey intent because of mindless repetition. The most accessible

internal communication for the staff is the e-Circulars. Once instructions

are uploaded as e-Circular it is presumed to be accessible to every staff

member of the Bank. The e-circulars are however still addressed (in

keeping with protocol) to The Chief General Manager of the Circles and

ends with “Please bring this to the attention of all concerned at your

Administrative units and Branches.” There are Circles who then upload

the contents of the Corporate Centre e-circular as e-circular from the

Circle and there are Circles who do not. The Circles who re-issue the

instructions end them with the line” Please bring this to the attention of

all concerned at your Branch.” This e-reissue is reminiscent of the

multiple cycles of re-issue that a circular underwent earlier in its journey

from Corporate Centre to branches.

Mindless repetition has ensured that no intent gets conveyed by the line

“Please bring this to the attention of all concerned at your Branch.” The

instruction to Circles was necessary when Circulars were manually

dispatched. Today the uploading of the Circular is a notice to all

concerned to read and comply. The Circles and the Controllers can at

best re-iterate the fact of issuance of e-circular when they observe non-

compliance by any concerned branch or official.

Another example where language has ceased to convey intent because of

frivolous repetition is 'meticulous compliance'. The following examples

are taken from e-circulars issued since April 01, 2012:

E-Circulars

State Bank of India

34

Please arrange to issue instructions to operating units for meticulous

compliance with immediate effect and arrange accordingly

Please arrange to advise all concerned under your control to ensure

meticulous compliance of the above instructions of RBI.

All concerned are advised to meticulously follow the above instructions

within the overall ambit of rules framed.

All pension paying branches may be advised accordingly for meticulous

compliance of the revised instructions.

The words “meticulous compliance' appears in nearly 25% of the

Circulars issued by the Bank.

The dictionary definition of meticulous is “showing great attention to

detail; extremely careful and precise” and compliance means to be in

conformity or accordance with regulations and instructions. If there is a

set of 10 instructions to be complied with, branches can confirm

compliance only if all the instructions are complied with irrespective of

the detail required in each compliance. Does the level of compliance

differ when compliance is meticulous? Meticulous is more of an

observed behavioural trait depending on how exacting one's standards

are. A level of compliance may seem meticulous to one Controller and

not so meticulous to another Controller who is fussy about detailed

record-keeping.

One may even say that meticulously drafted instructions in the Bank's

circulars are more necessary than an assertion by Controllers that their

branches have confirmed having 'noted the instructions for meticulous

compliance'.

When discussing strategies for business growth at P Review meetings,

the use of language often helps in camouflaging intent to act. Some of the

strategies recently heard in a P Review meeting are:

Monitoring the performance of negative growth branches by adopting

Language and intent in discussing strategies


35

the mentoring concept, providing required support as early as possible

so that the branches start contributing to Circle business.

Leveraging the synergy with SMEBU so as to bring P segment business

to our books.

Aggressive contacting of potential customers.

SBI Life coverage of all education loan customers to be maximized.

Explore the possibilities for further wallet share from existing Corporate

customers.

Use of word groups like mentoring concept, as early as possible,

aggressive contact, leveraging synergy, maximum coverage and explore

possibilities have come to signify inaction as there are no specific

actionable items that the speaker has to account for if not done before the

next meeting. How would the above sentences read if there is a plan for

specific action?

We shall jointly work on strategies with two negative growth branches in

each RBO so that the branches show positive growth within three

months

We shall identify five units in co-ordination with SMEBU every quarter

and bring their employees under the Bank's corporate Salary Package.

We shall do a market survey of the area of operation of the Branch to

understand who are the non-customers of SBI and why they are so and

shall market our products and services to them.

SBI Life coverage among education loan customers will be increased

from 15% to 20%.

We shall identify the existing businesses of our Corporate customers that

are not with SBI and the reasons therefore and submit a plan and timeline

to get 10% of these businesses within two years.

Use of language to convey vagueness in intent is seen even in

professionally managed well reputed companies. Here is a company

State Bank of India

36

talking about technology:

'Companies need the right technology; the technology that is not reactive

but can translate data to wisdom and help formulate effective business

strategy'. Technology can churn out reams of data but cannot translate

data into wisdom. Translating data into wisdom requires understanding

of context. We still do not have technology that 'understands' the context

behind the data. Every formulated business strategy with or without the

help of technology has to be effective.

And here is a Bank talking about its HR policies:

Unleashing employee potential is one of the key success factors for us.

We achieve this by a standardized, systematic and seamless approach in

managing talent which helps us in identifying and developing the right

high potentials, stretching their skills to build competencies for higher-

level leadership to lead current and emerging business opportunities.

A simple way of stating this highfalutin policy would be:

Opportunities exist for talented employees to demonstrate their skills

and potential; to develop them and to emerge as future leaders of the

Bank.

Obfuscation of simple intent by use of belaboured language is also seen

in the Mission and Vision statements of Banks. The earlier mission

statement of the Bank if anybody remembers ran thus:

'To retain the Bank's position as the premier Indian Financial Services

Group with world class standards and significant global business,

commitment to excellence in customer, employee and shareholder

satisfaction and to play a leading role in the expanding and diversifying

financial services sector while continuing emphasis on its development

banking role'.

The purpose of a Mission statement is to unambiguously state the

purpose of the organization's present existence. It is said that a good

Mission Statements


37

mission statement answers three questions:

What do we do?

For whom are we doing it?

What is the benefit?

Again it is said that the ease of obtaining answers to these questions is in

indirect proportion to the length of the Mission statement. The less the

length the easier it becomes to understand the Mission statement.

Examples given are the mission statements of Google and Amazon:

“to organize the world's information and make it universally accessible

and useful”. (Google)

“to build a place where people can come to find and discover anything

they might want to buy online.” (Amazon)

Maybe because there is nothing unique about providing Banking

service, the mission statements of most Banks look similar as the

following examples of different Banks show:

"to provide superior, proactive banking services to niche markets

globally, while providing cost-effective, responsive services to others in

our role as a development bank, and in so doing, meet the requirements

of our stakeholders".

"To provide the finest banking services by upgrading human capital and

infusing advanced technology, thereby achieving total customer

satisfaction; and being reckoned as the “Best Bank” in the Industry on

all efficiency parameters and to enhance shareholders' wealth by

ensuring sound growth of business and make valuable contributions to

national economic growth"

While the above are Mission statements of Public Sector Banks, that of a

leading Private Sector Banks runs as:

'Our mission is to be "a World Class Indian Bank", benchmarking

ourselves against international standards and best practices in terms of

State Bank of India

38

product offerings, technology, service levels, risk management and audit

& compliance….to build sound customer franchises across distinct

businesses so as to be a preferred provider of banking services for target

retail and wholesale customer segments, and to achieve a healthy growth

in profitability, consistent with the Bank's risk appetite….while ensuring

the highest levels of ethical standards, professional integrity, corporate

governance and regulatory compliance.'

And another leading Private Sector Bank's Mission statement is:

'We will leverage our people, technology, speed and financial capital to:

�be the banker of first choice for our customers by delivering

high quality, world-class products and services.

� expand the frontiers of our business globally.

� play a proactive role in the full realisation of India's potential.

� maintain a healthy financial profile and diversify our earnings

across businesses and geographies.

� maintain high standards of governance and ethics.

� contribute positively to the various countries and markets in

which we operate.

� create value for our stakeholders.'

The mission statements indicate that all Banks – whether Public or

Private – have common purpose which briefly stated are:

� provide excellent customer service

� expand globally

� be active in Development Banking

� maintain high ethical standards

� create value for all stakeholders

As stated earlier, the Mission statements are all look-alikes because no


39

Bank can have products that are distinct from what other banks have. To

pretend that a distinction exists, Banks have to make the language of

mission statements deliberately complicated and lengthy. SBI's new

Mission statement is jargon free but attempts not to miss out on any

customer segment or service. The mission statement could as well have

been –'Be a Banker to every Indian'.

What about internal communication? In hierarchical organisations top

down communication is generally brusque and dictative. Thus as we saw

in the language of e-circulars, mere 'compliance' is not enough; what is

required is 'meticulous' compliance. Even e-circulars are to be brought to

the notice of 'all concerned.' In contrast, when communication flows

from lower to higher level, we have what Steven Pinker in his book ”The

Stuff of Thought” - a masterful study on the use of words and language in

social settings - calls deferential politeness. A letter from a Branch

Manager to his Controller may end with a long winded phrase like 'I shall

be grateful if I am kindly guided on my further course of action in the

matter' when a direct 'Please advise' conveys the same intent. The Branch

Manager (or any other Official similarly placed in hierarchy) adopts a

long-winded, verbose style, as he is apprehensive of the power the

receiver wields over him and so he is particularly careful not to sound

affrontive. The greater the hierarchical status or power of the person

receiving the communication and his distance from the communicator,

the more deferential the tone of communication becomes.

Nowhere is the status of the receiver in the hierarchy made emphatically

clear than in the use of words 'Please speak/ Please refer' in internal notes or

memos. 'Please speak' is a remnant from bureaucratic communication

styles. The communication tools available today have overcome barriers of

time and distance and the clarificatory response to Please speak, if

necessary can be obtained in an instant. If 'Please speak' still continues to

appear in internal memos, maybe the barriers are hierarchical. Often, the

person who has put up the note and who is therefore the person required to

'Please speak' is not even addressed by his name but only by his

Barriers in Internal communication

State Bank of India

40

designation. There is a world of difference in the impact of

communication if a person even if lower in status or hierarchy, is

addressed by his name than if he is addressed by his job designation.

“The great enemy of clear language is insincerity. When there is a gap

between one's real and one's declared aims, one turns as it were

instinctively to long words and exhausted idioms.” (George Orwell)

One may argue that the words used in communication do not matter if the

intent is clearly conveyed. Communication styles however reflect the

internal culture of an organisation. Badly drafted messages and mindless

repetition of vacuous words also imply a slovenly approach to work and

customer service. The purpose of this article is to draw attention to the

incongruities of some of our communication styles that need to change

with the times but remain deeply entrenched in our system by tradition

and imitation.

In conclusion


41

Shri Ajith R.Manager (Law)Law Department, SBI, CC, Mumbai

Whether payee or holder of cheque can initiate proceeding of

prosecution under Section 138 of Negotiable Instrument Act, 1881

(NI Act) for the second time if he has not initiated any action on

earlier cause of action?

Yes, held by the Supreme Court by overruling its earlier decision in

Sadanandan Bhadran v. Madhavan Sunil Kumar (1998) 6 SCC 514.

In Sadanandan Bhadran's case (supra) the Supreme Court held that

while a second or successive presentation of the cheque is legally

permissible so long as such presentation is within the period of six

months or the validity of the cheque whichever is earlier, the second or

subsequent dishonor of the cheque would not entitle the holder/payee

to issue a statutory notice to the drawer nor would it entitle him to

institute legal proceedings against the drawer in the event he fails to

arrange the payment. The decision gives three distinct reasons why that

should be so.

�The first and the foremost of these reasons is the use of the expression

“cause of action” in Section 142(b) of the NI Act which according to the

Court has been used in a restrictive sense and must therefore be

understood to mean that cause of action under Section 142(b) can

arise but once.

MSR Leathers vs S. Palaniappan & Anr. (Judgment dated 26-09-2012 in Crl. Appeal Nos. 261 – 264 of 2002by the Supreme Court.)

State Bank of India

42

�

commission of only one offence and that the offence is complete no

sooner the drawer fails to make the payment of the cheque amount

within a period of 15 days of the receipt of the notice served upon him

and the failure of the holder to institute proceedings would tantamount to

“absolution” of the drawer of the offence committed by him.

�The third reason is that successive causes of action will militate

against the provisions of Section 142(b) and make the said provision

otiose.

The Court in Sadanandan Bhadran's case (supra) held that the failure of

the drawer/payee to file a complaint within one month resulted in

forfeiture of the complainant's right to prosecute the drawer/payee

which forfeiture cannot be circumvented by him by presenting the

cheque afresh and inviting a dishonour to be followed by a fresh

notice and a delayed complaint on the basis thereof.

The correctness of the above judgment came to the consideration of a

larger Bench of the Supreme Court in the present appeal. In the present

matter also the cheques were dishonoured for want of sufficient funds

and notices under Section 138 of NI Act were issued. May be because the

respondent assured for arrangement of fund, the cheques were presented

again but the second time also the cheques were dishonoured. Hence the

appellant issued notices under Section 138 of NI Act and filed the

criminal complaints. The respondent challenged the validity of the

complaints which were dismissed by the Magistrate Court. However, on

revision petition by the Respondent, the complaints were quashed by the

High Court relying on the Sadanandan Bhadran's case (supra) and

holding that a complaint based on a second or successive dishonour of

the cheque was not maintainable if no complaint based on an earlier

dishonour, followed by the statutory notice issued on the basis thereof,

had been filed. Hence the present appeal before the Supreme Court.

When the appeal first came up for hearing before a Division Bench of the

Supreme Court, the Bench expressed its reservation about the

correctness of the view taken in Sadanandan Bhadran's case (supra) and

accordingly referred the matter to a larger Bench. The views of the larger

The second reason is that dishonour of a cheque will lead to


43

Bench are as under.

Section 138 of the Negotiable Instruments Act, 1881, constituting

Chapter XVII of the NI Act which was introduced by Act 66 of 1988,

inter alia, provides:

“138. Dishonour of cheque for insufficiency, etc., of funds in the

account. Where any cheque drawn by a person on an account

maintained by him with a banker for payment of any amount of money

to another person from out of that account for the discharge, in whole or

in part, of any debt or other liability, is returned by the bank unpaid,

either because of the amount of money standing to the credit of that

account is insufficient to honour the cheque or that it exceeds the amount

arranged to be paid from that account by an agreement made with that

bank, such person shall be deemed to have committed an offence and

shall, without prejudice to any other provision of this Act, be punished

with imprisonment for a term which may extend to two year, or with fine

which may extend to twice the amount of the cheque, or with both”

Proviso to Section 138, stipulates three distinct conditions precedent,

which must be satisfied before the dishonour of a cheque can constitute

an offence and become punishable.

�The first condition is that the cheque ought to have been presented to

the bank within a period of six months from the date on which it is drawn

or within the period of its validity, whichever is earlier.

�The second condition is that the payee or the holder in due course of

the cheque, as the case may be, ought to make a demand for the payment

of the said amount of money by giving a notice in writing, to the drawer

of the cheque, within thirty days of the receipt of information by him

from the bank regarding the return of the cheque as unpaid.

�The third condition is that the drawer of such a cheque should have

failed to make payment of the said amount of money to the payee or as

the case may be, to the holder in due course of the cheque within fifteen

days of the receipt of the said notice.

It is only upon the satisfaction of all the three conditions mentioned

State Bank of India

44

above and enumerated under the proviso to Section 138 as clauses (a),

(b) and (c) thereof that an offence under Section 138 can be said to have

been committed by the person issuing the cheque.

Section 142 of the NI Act governs taking of cognizance of the offence

and starts with a non-obstante clause. It provides that no court shall take

cognizance of any offence punishable under Section 138 except upon a

complaint, in writing, made by the payee or, as the case may be, by the

holder in due course and such complaint is made within one month of

the date on which the cause of action arises under clause (c) of the

proviso to Section 138. In terms of sub-section (c) to Section 142, no

court inferior to that of a Metropolitan Magistrate or a Judicial

Magistrate of the first class is competent to try any offence punishable

under Section 138.

The Court observed that neither Section 138 nor Section 142 or any other

provision contained in the NI Act forbids the holder or payee of the

cheque from presenting the cheque for encashment on any number of

occasions within a period of six months of its issue or within the period

of its validity, whichever is earlier and such presentations will be

perfectly legal and justified.

Further, there is, nothing in the proviso to Section 138 or Section 142 of

the NI Act to oblige the holder/payee of a dishonoured cheque to

necessarily file a complaint even when he has acquired an indefeasible

right to do so. The fact that an offence is complete need not necessarily

lead to launch of prosecution especially when the offence is not a

cognizable one. It follows that the complainant may, even when he has

the immediate right to institute criminal proceedings against the drawer

of the cheque, either at the request of the holder/payee of the cheque or

on his own volition, refrain from instituting the proceedings based on the

cause of action that has accrued to him. Such a decision to defer

prosecution may be impelled by several considerations such as an

assurance of the drawer that given some time the payment covered by

the cheques would be arranged, an attempt to avoid time consuming and

generally expensive legal recourse, a belief that a fresh presentation of

the cheque may result in encashment, other reasons including the trade


45

and business dealings of the parties, intention to give a financial

accommodation, etc. There is nothing in the provisions of the NI Act that

forbids the holder/payee of the cheque to demand by service of a fresh

notice under clause (b) of proviso to Section 138 of the NI Act, the

amount covered by the cheque dishonoured on a second or a successive

presentation.

For the above reasons, the Court disagreed with the decision in

Sadanandan Bhadran's case (supra)which held that successive causes of

action are not within the comprehension of Sections 138 and 142 of the

NI Act. The Court also differed with the reasoning in the earlier

judgment for the following reasons.

The Court observed that the expression 'cause of action' appearing in

Section 142 (b) of the Act cannot be understood to be limited to any

given requirement out of the three requirements that are mandatory for

launching a prosecution on the basis of a dishonoured cheque. Every

time a cheque is presented in the manner and within the time stipulated

under the proviso to Section 138 followed by a notice within the meaning

of clause (b) of proviso to Section 138 and the drawer fails to make the

payment of the amount within the stipulated period of fifteen days after

the date of receipt of such notice, a cause of action accrues to the holder

of the cheque to institute proceedings for prosecution of the drawer. In

view of the Court, there is nothing either in Section 138 or Section 142

to curtail the said right of the payee for the reason than the failure of the

holder of the cheque to institute prosecution against the drawer when the

cause of action to do so had first arisen.

Simply because the prosecution for an offence under Section 138 must

on the language of Section 142 be instituted within one month from the

date of the failure of the drawer to make the payment does not militate

against the accrual of multiple causes of action to the holder of the

cheque upon failure of the drawer to make the payment of the cheque

amount. In the absence of any juristic principle on which such failure to

prosecute on the basis of the first default in payment should result in

forfeiture, it is difficult to conclude that the payee would lose his right

to institute such proceedings on a subsequent default that satisfies all the

State Bank of India

46

three requirements of Section 138.

The holder of a cheque can present it before a bank any number of times

within the period of six months or during the period of its validity,

whichever is earlier. This right of the holder to present the cheque for

encashment carries with it a corresponding obligation on the part of the

drawer to ensure that the cheque drawn by him is honoured by the bank

who stands in the capacity of an agent of the drawer vis-à-vis the holder

of the cheque. If the holder of the cheque has a right, there is no reason

why the corresponding obligation of the drawer should also not continue

every time the cheque is presented for encashment. If the legislative

intent was to restrict prosecution only to cases arising out of the first

dishonour of a cheque nothing prevented it from stipulating so in clause

(a) itself. However, there is nothing to that effect in the NI Act. In the

absence of any such provision a dishonour whether based on a second

or any successive presentation of a cheque for encashment would be a

dishonour within the meaning of Section 138 and clause (a) to proviso

thereof. Hence, there is no doubt that so long as the cheque remains

unpaid it is the continuing obligation of the drawer to make good the

same by either arranging the funds in the account on which the cheque

is drawn or liquidating the liability otherwise. A dishonour of the cheque

can be made a basis for prosecution of the offender but once, but that

doesn't mean that the holder of the cheque do not have the discretion to

choose out of several such defaults, one default, on which to launch such

a prosecution. The omission or the failure of the holder to institute

prosecution does not, therefore, give any immunity to the drawer so long

as the cheque is dishonoured within its validity period and the conditions

precedent for prosecution in terms of the proviso to Section 138 are

satisfied.

Coming to the question whether there is anything in Section 142(b) to

suggest that prosecution based on subsequent or successive dishonour is

impermissible, the Court observed that while a complaint based on a

default and notice to pay must be filed within a period of one month from

the date the cause of action accrues, which implies the date on which the

period of 15 days granted to the drawer to arrange the payment expires,


47

there is nothing in Section 142 to suggest that expiry of any such

limitation would absolve him of his criminal liability should the cheque

continue to get dishonoured by the bank on subsequent presentations.

So long as the cheque is valid and so long as it is dishonoured upon

presentation to the bank, the holder's right to prosecute the drawer for

the default committed by him remains valid and exercisable. By reason

of a fresh presentation of a cheque followed by a fresh notice in terms of

Section 138, proviso (b), the drawer gets an extended period to make the

payment and thereby benefits in terms of further opportunity to pay to

avoid prosecution. Such fresh opportunity cannot help the defaulter on

any juristic principle, to get a complete absolution from prosecution.

The Court also referred to the amendment to the NI Act in 2002 whereby

discretionary powers have been conferred upon the court to take

cognizance of a complaint under section 138 of the NI Act even after

expiry of the period of limitation of one month. This permits the payee to

institute prosecution proceedings against a defaulting drawer even after

the expiry of the period of one month. If a failure of the payee to file a

complaint within a period of one month from the date of expiry of the

period of 15 days allowed for this purpose was to result in 'absolution',

the proviso would not have been added to negate that consequence. The

statute as it exists today, therefore, does not provide for 'absolution'

simply because the period of 30 days has expired or the payee has for

some other reasons deferred the filing of the complaint against the

defaulter.

The object underlying Section 138 of the NI Act is to promote and

inculcate faith in the efficacy of banking system and its operations,

giving credibility to Negotiable Instruments in business transactions

and to create an atmosphere of faith and reliance by discouraging people

from dishonouring their commitments which are implicit when they pay

their dues through cheques. The provision was intended to punish those

unscrupulous persons who issued cheques for discharging their

liabilities without really intending to honour the promise that goes with

the drawing up of such a negotiable instrument. It was intended to

enhance the acceptability of cheques in settlement of liabilities by

State Bank of India

48

making the drawer liable for penalties in case the cheque was

dishonoured and to safeguard and prevent harassment of honest drawers.

One of the salutary principles of interpretation of statutes is to adopt an

interpretation which promotes and advances the object sought to be

achieved by the legislation, in preference to an interpretation which

defeats such object. Purposive interpretation as a sound principle for the

Courts to adopt while interpreting statutory provisions. If an expression

is susceptible of a narrow or technical meaning, as well as a popular

meaning, the Court would be justified in assuming that the Legislature

used the expression in the sense which would carry out its object and

reject that which renders the exercise of its power invalid.

The Court relaying on its various decision examined the principles of

statutory interpretation. If it appears that the obvious aim and object of

the statutory provisions would be frustrated by accepting the literal

construction, then it may be open to the Court to enquire whether an

alternative construction which would serve the purpose of achieving the

aim and object of the Act, is reasonably possible. Even if there exists

some ambiguity in the language or the same is capable of two

interpretations, it is trite the interpretation which serves the object and

purport of the Act must be given effect to. In such a case the doctrine of

purposive construction should be adopted. Law should take a pragmatic

view of the matter and respond to the purpose for which it was made and

also take cognizance of the current capabilities of technology and life-

style of the community. It is well settled that the purpose of law provides

a good guide to the interpretation of the meaning of the Act. The Court

quoted the views of Justice Krishna Iyer in Busching Schmitz Private

Ltd's case that legislative futility is to be ruled out so long

as interpretative possibility permits.

Applying the above rule of interpretation and the provisions of Section

138, the Court held that a prosecution based on a second or successive

default in payment of the cheque amount should not be impermissible

simply because no prosecution based on the first default which was

followed by a statutory notice and a failure to pay had not been launched.

If the entire purpose underlying Section 138 of the Negotiable


49

Instruments Act is to compel the drawers to honour their commitments

made in the course of their business or other affairs, there is no reason

why a person who has issued a cheque which is dishonoured and who

fails to make payment despite statutory notice served upon him should

be immune to prosecution simply because the holder of the cheque has

not rushed to the court with a complaint based on such default or simply

because the drawer has made the holder defer prosecution promising to

make arrangements for funds or for any other similar reason. There is no

real or qualitative difference between a case where default is committed

and prosecution immediately launched and another where the

prosecution is deferred till the cheque presented again gets dishonoured

for the second or successive time.

According to the Court, an interpretation which curtails the right of the

parties to negotiate a possible settlement without prejudice to the right

of holder to institute proceedings within the outer period of limitation

stipulated by law should be avoided. By interpretation, the Court should

not force the parties to launch complaints where they can or may like to

defer such action for good and valid reasons. After all, neither the courts

nor the parties stand to gain by institution of proceedings which may

become unnecessary if cheque amount is paid by the drawer. The Court

also observed that the magistracy in this country is over-burdened by an

avalanche of cases under Section 138 of NI Act and it is difficult to say

that the law declared in its earlier decision has not added to court

congestion.

In the result, the Court overruled the decision in Sadanandan Bhadran's

case (supra) and held that prosecution based upon second or successive

dishonour of the cheque is also permissible so long as the same satisfies

the requirements stipulated in the proviso to Section 138 of the

Negotiable Instruments Act. The reference is answered accordingly and

the appeals transferred to the regular Bench for hearing and disposal in

light of the observations made by the higher Bench.

02

Monthly Review December 2011

02

SBI Monthly Review is brought out by the State Bank of India, Economic

Research Department, Corporate Centre, State Bank Bhavan, Madam Cama

Road, Mumbai - 400 021

Disclaimer: The SBI Monthly Review is not a priced publication. Data and

information is based on press and other reports and no responsibility is accepted for

the accuracy of facts and figures contained therein. The opinions expressed do not

necessarily reflect those of the Bank or its subsidiaries. This document and its

contents are proprietary information of State Bank of India and may not be

reproduced or otherwise disseminated in whole or in part without obtaining written

permission from the Economic Research Department.

Articles are invited from both staff members and others for publication in the SBI

Monthly Review. The size of the article should be about 2,500 to 3,000 words and

should be sent in soft version and also a hard copy. The article can be on a topic

concerning the economy, agriculture, industry, banking, finance, the monetary or

external sector, international economic developments, management, including

human resources management, or any topic of particular relevance and interest to

bankers.

To encourage quality writing honorarium has been increased from 1st April 2011.

Selected original article for the Monthly Review will be paid an honorarium of

3,000 to non-staff writer and 2,500 to one from among the staff. A lump sum

payment of 1,500/- is made for an article based on a paper presented at a

seminar/conference or published elsewhere, earlier.

Ordinarily, no correspondence is entertained in respect of articles sent for

publication.

Please send your contributions to the

It has been decided by the Bank to make all payments by direct credit to the account

through electronic payment systems instead of issuing Banker's Cheques.

Therefore, authors are requested to furnish the following particulars/information

along with their papers for effecting electronic payment of honorarium:

(a) Account Number (Author's)

(b) Bank's Name

(c) IFSC Code

(d) Provident Fund Account Number in case of Staff

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Registered with the Registrar of Newspaper for India under No. 11490/62

Prepared in Economic Research Department, State Bank of India

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