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ABS IMPACT - Competition Commission Agrees to Look Into Charge of Cartelization by Banks for fixing 4% Interest on Saving Bank Deposits

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Rajesh Goyal 



One of the Headlines in ToI  on 3rd December, 2012 read as "PSU Banks Under Lens For "Fixing" Saving Account Rates".     The report indicates  that "Competition Commission of India, the fair play watchdog, has decided to look into the common, 4% interest rate being paid by all public sector banks on savings bank deposits despite the RBI moving to an unregulated regime in October 2011".   "They seem to be acting in tandem and it needs to be investigated. Because of this policy, small depositors are losing out and banks are also losing business," said a CCI official, who did not wish to be identified.


This news must have surprised and shocked many top bankers.  However, I was neither surprised nor shocked, but rather felt relieved and thrilled that at least some people have started thinking in the right direction.   Let me explain the reasons for this difference in feelings. 



Our regular readers would remember my article  "Are PS Banks Looting the Poor Through Cartelization ?   Can They  Be  Fined Heavily  in Near Future ?"   It was uploaded at on 30th July, 2012.  Frankly speaking only few of our readers appreciated the article.   When I discussed the same with some senior bankers, I felt most of them were skeptical about my views and felt that I am taking up a lost cause.   However, from my heart I felt that PS Banks are really looting the poor (specially in rural and semi urban areas, where they do not have option but to bank with PS Banks - mostly leading banks) through cartelization of saving bank interest payments.



After uploading the above article on 30th July, we waited for about week and  noticed that  CMDs / EDs and other top management of PS banks is deaf  to such articles, as they feel that they are too big and need not respond to any such small articles.  ( As GoI is now a days immune to the exposures of Anna and Kejeriwal),  Finally, we decided to take up this issue with Competition Commission of India as all cartelizations needs to be reported to this Commission.   Thus, on 6th August, 2012, I sent a copy of the above referred article to Chairman, Competition Commission of India vide email with the following request :

"I am forwarding an article which can be relevant for your Commission for taking suo motto action"


It appears that now Competition Commission of India (CCI) has taken suo motto notice of our Article and initiated action in this regard.  This is a victory for whose stand has been vindicated to the extent that CCI has agreed to look into the facts and prima-facie feels that there is a strong case that PS Banks are indulging into cartelization for fixing the rate of interest on saving bank deposits.


Our readers can read the full article (uploaded on 30th July, 2012) by clicking on the above  link.  However, I would like to quote few lines from the same article which will show why we were concerned for this issue.  When I wrote the above article I was fully aware that only few people will be able to appreciate its content.   It is clear from the fact that article started with the following lines :-


"Today I am writing about a topic which till date has hardly been discussed openly at any forum under the heading of cartelization.   This may be the first article on this topic.   Nobody has seen suppressing of interest rates on  Saving Bank accounts from this angle.    CMDs of PS Banks are shy about discussing this topic  purely owing to inner guilt of cheating the poor rural folks.   In media we have very few people who understands the financial implications of such moves. 


The article contents included "The statements of CMDs of PS Banks clearly indicates that they are in no mood to squeeze their profits and offer the rural and semi urban customers the benefits of deregulation as those poor customers have no alternative but to continue their banking with PS Banks as private banks do not have branches in rural and semi urban areas.   Is this not a cartelization ?  PS Banks are cheating the poor rural and semi urban customers and CMDs of PS Banks openly say that they will not pay market related rate of interest to rural customers as they do not have any competition in those segments." 

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I feel contended that CCI has taken note of our concerns and ToI has reported that CCI is looking into this issue of cartelization by PS Banks.   However, I am sure to note that Reserve Bank of India is totally silent on this issue.  Inspite of fact that RBI is the top most regulator to the banks and has eminent, vocal statisticians like K C Chakravarty (presently DG of RBI), who considers himself to be the biggest crusader of Financial Inclusion,  has never chided the CMDs of PS Banks on this issue.     Does de-regulation means complete freedom for fixing SF interest rates even if it is cartelization (and looting of rural and semi urban masses )which can be seen even by a blind man?   RBI has prescribed broad parameters for fixing Base Rate  and seeks regular feedback from banks about such calculations,  why  RBI is hesitant to fix broad parameters on the basis of which  PS should Banks arrive at rate of interest on SF deposits?  The reason appears that they are working for corporate sector and not for welfare of rural masses and senior citizens.     I am great fan of Mr Subbarao, RBI Governor, but on this issue he too has not shown the desired guts - may be he is under extreme pressure of GoI as they want him to reduce the rate of interest rather than ask bankers to pay market related interest on SF deposits.



We are keeping close watch on the developments and will consider options of filing a PIL before CCI or Court against such a cartelization of banks.    I hope CCI will not bend under pressure and will do a fair investigation in this matter.    We have earlier said in an article that 'We Have Hopes Only from Regulators' and not from CMDs / EDs of banks or even from FM or bureaucrats of MoF.   I am sure that this is a fit case for fixing liability of top managements and banks needs to be taken to task for openly defying the law of the land. 





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