Banking

RBI board approves radical changes, introduces COO post as proposed by Raghuram Rajan

In a bid to introduce radical changes in the functioning of the Reserve Bank of India, the RBI board has approved Governor Raghuram Rajan’s proposal of shrinking organizational cumbersomeness and reducing overlaps. It also seeks to create the post of Chief Operating Officer (COO), an executive who’s likely to be made responsible for executing the RBI’s reform agenda.

Rajan proposed to bring all aspects of RBI under 5 functional departments to be supervised by 4 Deputy Governors and a COO. He suggested merging some departments to avoid overlaps. He is also inclined to make lateral hires from the private sector as practiced in the West.

Nachiket Mor is seen as the most likely candidate for the post of COO. Mor is a former executive director of ICICI Bank and also chaired the RBI panel on financial inclusion.

Since the position of COO is likely to be at the deputy governor level, the post’s status will have to be discussed further with the government, and which may also necessitate some legislative amendments.

Now only 3 transactions per month from ATMs of other Banks

The Reserve Bank of India (RBI) has allowed Banks to set a limit on free ATM transactions customers can do at ATMs of rival lenders. Now customers of a bank can make only three free transactions per month from the ATMs of rival banks. The banks are also allowed to set a limit on the number of free transactions at their own ATMs at five. The central bank has also permitted banks to charge up to Rs 20 for every transaction beyond the limit.

New charges will apply for transactions at ATMs located in six metro centres — Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad.

The move is aimed at rectifying the skewed development of ATMs in the country. Banks continued to set up ATMs in cities despite high level of concentration, as these could be used to cross-subsidize other products. However, there was a disinclination to expand the network in rural areas. The move by RBI would bring down the number of transactions in metros and could lead to some level of consolidation.

However, this reduction will not apply to customers having no-frills, small or Basic Savings Bank Deposit Account (BSBDA) type of accounts as well as for transactions carried out by account holders at ATMs situated outside these six metros. Banks are also allowed to provide free transactions above the mandated limit.

The number of automated teller machines (ATMs), which stood at a little over 27,000 as at end-March 2007, has increased to over 1.6 lakh across the country by end-March 2014.

Bimal Jalan appointed as head of Expenditure Management Commission

Former Reserve Bank of India (RBI) Governor Bimal Jalan has been appointed as head of the Expenditure Management Commission, which will study various aspects of expenditure reforms to be undertaken by the government. The panel will submit its interim report before the 2015-16 Budget and its final report before the 2016-17 Budget.

The formation of EMC follows the announcement of the same made by Finance Minister Arun Jaitley in Budget 2014-15.  With the setting up of EMC, the government intends to review the allocative and operational efficiencies of the government expenditure to achieve maximum output.

Previous ERCs

Atal Bihari Vajpayee government initiated Expenditure Reforms Commission (ERC) headed by former finance secretary K P Geethakrishnan during the year 1999-2000. This commission suggested moderating the central government machinery and winding up of some government departments. A few recommendations of the panel were implemented during the term of then Finance Minister Yashwant Sinha. 

In 2002, UPA government appointed former finance secretary Vijay Kelkar as the head of the Committee for fiscal consolidation plan which included cutting down the subsidies. The Committee recommended increasing diesel and cooking gas prices gradually. The panel’s suggestions are being followed.

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