BANKING IS CHILD'S PLAY

Yes, it’s true, not joking, child labors in Delhi are running a Bank called “Children’s Development Bank”, facilitated by Delhi based NGO Butterflies. Even depositors, customers and employees are children.

The Bank opens in the evening because that’s the time when children get time after finishing their chores. Bank operates both saving and current accounts. Country coordinator of CDB believes such initiative makes the children feel confident as it inculcates the habit of saving in them. Moreover as the bank is managed and control by children, it becomes a tool for skill education.

The CDB also disburses advances to the children. The age for procuring an advance is between 15 and 18. The children use advances for setting up small businesses. However one has to undergo strict procedure before procuring advances from the bank.

The all India disbursal of CDB between 2004 and 2007 was around Rs. 400000. Of this bank recovered Rs. 225000 till date.

Foreign Banks in Rural Areas…

• Many foreign banks including HSBC & STANDARD CHARTERED planning to enter in semi urban and rural areas.
• China-Banking giant HSBC plans to open a bank in rural community in cental china.
• It is the first foreign financial institution doing this job.
• This is because Chinese government pushes to develop the financial industry in its agricultural hinterland.

• BARCLAYS BANK is trying to put ground its feet in Indian banking system so it needs full rural push also for greater success & to unlock value.
• Indian government is also working on development of banking sector in rural areas.
• But then also there is potential market in rural areas for foreign banks.

The following points are to be considered by a foreign banks entering in Indian rural markets…

1. Understanding the psychology of the people of rural India.
2. Studying the needs of Indian rural population.
3. Use of local language and not English.
4. Setting up branches not based on population but on possible transactions.
5. Competitive schemes to beat unorganized financial system. ( Shrofs, Lalas, Zamindars etc. )
6. The documentation should be easy.
7. Online commodity services should be provided.
8. Microfinance facility must be available.
9. They should give positive empowerment and support to rural ecosystem.
10. They should play an active role in rural economy.
11. Making tie ups with initiatives like ITC e choupal.
12. Also in an earlier Article called FAR-OUT FINANCE our friend Rishi has put light on one good principle in rural financing, i assert that such principles should be applied to help the rural populace as they will curb the menace of shroffs etc. and give more business to banks!

These steps will enable foreign banks not only to get success but also to reduce NPA.

Basel II norms and preparedness of Indian banks

This article seeks to explore various dimensions of issues and problems that banking system might encounter after implementation of Basel II norms. To determine these issues and problems we will delve into various aspects of current banking system like role of central bank in implementing policy changes, complexity of the banking system in terms of assortment of banks of various sizes, importance in economy, geographical spread etc and current state of preparation to implement policy changes.

· Basel II – Modification of Basel I
Basel II is a modification of Basel I accord. The present accord has been criticized as being inflexible due to its focus on primarily credit risk and treating all types of borrowers under one risk category regardless of credit worthiness. The major criticism against the existing accord stems from its
• Broad brush approach – irrespective of quality of counter party or credit
• Encouraging regulatory arbitrage by cherry picking
• Lack of incentives for credit risk mitigation techniques
• Not covering operational risk
Therefore Basel committee proposed new norms which provide solutions of aforesaid problems. The newly proposed norms called as Basel II comprise of three important aspects which are termed as three pillars of Basel II. These are basically
1. Minimum Capital Requirements
2. Supervisory Review Process
3. Enhanced Disclosure


· Approach of RBI to the Basel II accord
RBI has designed a detailed road map for convergence of the banks to Basel II norms .This road map has been designed after due consultation with the banks .Banks were asked to decide upon the best alternative available to them for implementing Basel II norms and after considering this guidelines are prepared. These guidelines give due weight age to size of banks, complexity of operation, and availability of resources for implementation of these norms. Hence RBI has to formulate different guidelines for these banks which are at different stages of implementation of Basel II guidelines. For this RBI has formed a steering committee to suggest migration methodology to Basel II. Based on recommendation of steering committee RBI has proposed the “Draft guidelines for implementing new capital adequacy framework” covering the capital adequacy guidelines of the Basel II accord. These guidelines are with different level of stringency in terms of capital adequacy requirement.



· Indian banks and Basel II – Analysis of preparedness

I. General state of prepared ness: majority of the banks are confident of meeting deadline. MIS remain a major concern of majority of the banks.

II. Capital requirement: 54% of the banks are technologically equipped for Basel II norms implementation and have placed core banking solutions. 87 percent of respondent banks have already estimated the incremental capital required for this purpose in their organization. 27 per cent banks expect their capital requirements to increase by 1-2 % while 20 per cent banks expect their capital requirements to increase by more than 3 % during the implementation stage of Basel. Banks also predict that their capital requirement will increase after implementation of Basel II norms.


III. Impact on credit: 87percent of the respondent banks quoted that increased capital requirements imposed by the Basel accord will not make their banks more risk averse towards credit dispensation. Merely 13% felt that implementation of Basel II could have an
adverse impact on banks lending to commercial sector. Small and Medium enterprises and Farm and rural sectors are likely to be the most affected sectors.



· Issues and challenges for Indian banks: The issues and challenges that Indian banks might face after implementation of Basel II norms can be classified as Capital adequacy related, supervision related and disclosure related. All the issues under these heads are discussed in details in following part of the research paper.

· Conclusion: Implementation of Basel II has been described as a long journey rather than a destination by itself. Undoubtedly, it would require commitment of substantial capital and human resources on the part of both banks and the supervisors. RBI has decided to follow a consultative process while implementing Basel II norms and move in a gradual, sequential and co-coordinated manner. For this purpose, dialogue has already been initiated with the stakeholders. A steering committee comprising representatives of banks and different supervisory and regulatory departments is taking stock of all issues relating to its implementation. As envisaged by the Basel Committee, the accounting profession too, will make a positive contribution in this respect to make Indian banking system stronger.