New Pay Scales for RRB Employees

FM Announces New Pay Scales for Employees of RRBs at Par with PSBs
FM Asks RRBs to Expand their Branches with CBS to Achieve
Financial Inclusion
FM Reviews Performance of RRBs in Annual Review Meeting

        Finance Minister Shri Pranab Mukherjee has asked the Regional Rural Banks (RRBs) to bring their Non-Performing Assets (NPAs) below 5% by this year itself. Finance Minister also announced the wage revision of the pay-scale and allowances of the employees of the RRBs corresponding to those of Nationalised Banks as per 9th Bipartite Settlement. The additional cost burden of the arrears on this account would be about Rs. 791 crores. He was addressing the annual review meeting of Chairmen of RRBs and General Managers of Sponsor Banks, here today. Shri Mukherjee asked the RRBs to speed up their activities to expand their branches on platform of Core Banking Solutions. The Finance Minister emphasized upon use of new technology including Business Correspondents, mobile banking vans, tele-banking etc. to provide banking services to entire population of the country, especially in the rural areas.

Secretary Financial Services, Shri R. Gopalan, Deputy Governor RBI, Dr. K.C. Chakravarty, Chairman NABARD, Shri U.C.Sarangi and Additional Secretary, Financial Services, Shri Rakesh Singh were also present on this occasion among others.

Following is full text of the speech delivered by the Finance Minister Shri Pranab Mukherjee on this occasion:

“I am happy to be here in the annual review meeting of Chairmen of RRBs and General Managers of Sponsor Banks. Such meetings are being organized regularly since January 2007 and have helped in preparing a realistic action plan for strengthening the RRBs on a sustainable growth trajectory. I hope that this meeting will help us in further consolidating the efforts being made by the RRBs, Sponsor Banks, Govt Of India, NABARD and the Reserve Bank of India.

As you are aware, the first batch of RRBs were established on 2 October 1975 and their number gradually increased to 196 in 1986. The RRBs were designed as unique financial institutions with exclusive focus on development of rural areas. It was expected that these institutions would provide efficient financial services at affordable cost to the disadvantaged sections of the rural population.

Government of India had initiated a series of measures in the recent years to strengthen the RRBs to emerge as strong financial institutions for meeting the financial needs of the rural population. In the wake of the announcement in the Union Budget 2007-08, 27 RRBs which had negative networth as on 31 March 2007 have been recapitalized. A conducive policy environment has been created for expanding the branch network of RRBs. The branch licencing norms have been made flexible. RRBs have responded to these measures and have opened 716 branches during the last 02 years.

For further improving the financial health of RRBs, the Government of India started the process of structural consolidation of RRBs by amalgamating RRBs sponsored by the same Sponsor Banks within the State. The process of amalgamation is almost complete. As on date, there are 82 RRBs (46 amalgamated and 36 stand alone) with a branch network of 15,475 branches covering 619 districts, 26 States and 01 Union Territory (Puducherry).

RRBs are expected to play a vital role in promoting financial inclusion in the country. To achieve this objective, RRBs are being supported out of the Financial Inclusion Fund and Financial Inclusion Technology Fund set up in NABARD. NABARD had launched a pilot project for facilitating Financial Inclusion with ICT in 15 RRBs. The pilot project is expected to cover 150 villages in 30 districts of 14 States. All RRBs need to draw up individual plans for financial inclusion in their areas of operation at the earliest and also adopt the BC / BF model.

I am happy to note that RRBs have shown improved performance in many areas. The total loan outstanding of RRBs as on 31 March 2010 was Rs.83,562 crore whereas the deposits amounted to Rs.1,42,814 crore. The ground level credit flow of RRBs has improved from Rs.43,367 crore to Rs.56,268 crore thereby recording an appreciable growth rate of about 30%. A significant part of their performance is substantial lending to the priority sector. RRBs are mandated to lend 60% of their loans to the priority sector. During the last three years, RRBs have not only achieved the target fixed for the purpose but have maintained priority sector loans above 80%. I am also happy to note that RRBs have maintained their focus on agriculture as over 61% of the priority sector loans are for agriculture sector. The RRBs have also improved the health of their credit portfolio as the net NPA has now reduced to 1.62%. Only three RRBs are now making losses.

There is no doubt that the enabling environment created by Government of India, RBI and NABARD has helped the RRBs in improving their performance. Still, there are many areas of concern. 30 RRBs had accumulated losses to the tune of Rs.1,808 crore. All weak RRBs need to chalk out a time bound action plan to wipe out the accumulated losses and simultaneously achieve all the prudential norms.

In the last review meeting held in August 2009, I had expressed concern that a very large number of RRBs continued to have low CRAR. It was also observed during the review that some of the RRBs presently having reasonable CRAR would also be not able to maintain it on account of certain expenditure they might have to incur in the coming years for payment of enhanced wages and installation of CBS. To address this situation, a Committee was set up under the Chairmanship of Dr. K C Chakravarty, Deputy Governor, RBI to analyse the financials of RRBs and suggest measures so that each RRB has atleast 9% CRAR by 2012. The Committee has already submitted their report. The report is now under examination in consultation with NABARD and RBI. I am sure the implementation of the feasible recommendations of the Committee would help the RRBs to emerge as stronger financial institutions.

It is imperative that all RRBs embrace the latest technology for providing services to their customers. I have been constantly laying emphasis that all RRBs in a time bound matter should have all their branches under Core Banking Solution. I understand that 21 RRBs have now covered their entire bank branch network under CBS. 10 more RRBs are on the way to achieve full coverage of their branches under CBS. However, it is a matter of concern that CBS is yet to take roots in 51 RRBs. I would urge upon all the RRBs and their sponsor banks to attach utmost priority to CBS and in today’s meeting a time bound programme should be fixed for CBS implementation for each of the RRBs.

The sponsor banks also need to closely monitor the performance of their sponsored RRBs and provide timely guidance to them wherever necessary. It has been brought to my notice that some of the sponsor banks have withdrawn the Chairmen of RRBs before the completion of their tenure. Though the premature withdrawal must be for valid reasons, this could affect the performance of the RRBs in an adverse way, besides impacting the morale of the staff of RRBs. I suggest that the sponsor banks take all precautions at the time of selection of Officers for the post of Chairman of RRB so as to ensure that they continue to guide the RRBs for a period of at least three years.

I understand that of the 46 amalgamated RRBs, 39 are now scheduled by Reserve Bank of India. In case of 7 other RRBs, NABARD is required to undertake their inspection with reference to their annual accounts as on 31 March 2010. I would impress that this process of scheduling the remaining banks should be completed at the earliest.

I have noted that RRBs (officers and employees) Service Regulations 2010 have since been issued by GOI and the process has been initiated by the RRBs for adoption of these regulations. The new Appointment and Promotion (officers and employees) Rules have already been issued on 13.7.2010 for publication in the Gazette of India. These measures should help in improving productivity and business of the RRBs.

Keeping in view the expectations from the RRBs, the training and capacity building of RRB Officers and Staff need to be given utmost priority. A Committee set up for the purpose has identified a number of areas for capacity building of RRBs. All the RRBs should prepare a comprehensive plan for meeting the training needs of its staff members. A mechanism should be created for providing funding support to RRBs for conducting these training programme duly involving NABARD, sponsor banks and the RRB itself.

In the light of the ninth bipartite settlement between the Indian Banks Association representing the managements of the Public Sector Banks and the United Forum of Bank Union representing the associations/unions of all PSBs, the wage revision of the pay and allowances of the RRBs has also been taken up. The additional cost burden of the arrears is likely to be Rs 791 crores , which will bring down the total profits of the RRBs from Rs 2374 crores , as on 31st March, 2010 to Rs 1615 crores , adjusting for the additional cost burden of arrears on the RRBs. This is likely to lead to more RRBs going into losses against only three loss making RRBs at present. Yet the Government is committed towards fulfilling its obligation of giving equal pay scales corresponding to those of nationalized banks to the RRB employees. I am happy to announce that we are fulfilling the Government commitment of giving equal pay scales corresponding to those of nationalized banks to the RRB employees, as per Ninth Bipartite Settlement.

I look forward to our deliberations today and am sure that the gathering will have fruitful discussions and come out with pragmatic and innovative suggestions for further improving the performance of RRBs.”

PIB

FM asks CMS and Bankers to Improve Credit Flow for Housing, Weaker Sections,Minority Community and Education Loans

FM asks CMS and Bankers to Improve Credit Flow for Housing, Weaker Sections,Minority Community and Education Loans

FM Calls for Integration of Financial Literacy and Financial Inclusion with the Technological Development of Banking Infrastructure in Rural and Semi-Urban areas

Union Finance Minister Shri Pranab Mukherjee has asked the state governments and bankers to position themselves to finance the emerging demand for credit from different sectors including agriculture, manufacturing and services sectors in their respective regions. He further asked them to make serious efforts to improve the credit flow to housing, weaker sections, minority communities and education loans and closely monitor them through state level bankers committees. The Finance Minister was addressing the Joint Meeting of the Chief Ministers of Central and West Zone States and CEOs /CMDs of public sector banks and Financial Institutions in Mumbai today.

The meeting was attended by the Chief Ministers of Maharashtra, Rajasthan, Madhya Pradesh, Goa and Finance Ministers of Chhattisgarh and Administrator of Union Territory of Dadar and Nagar Haveli, Daman & Diu and Principal Secretary, Finance of Gujarat State. The meeting was also attended by representatives of RBI and NABARD.

The Finance Minister said that there is a need to ensure that financial literacy and financial inclusion is integrated with the technological development of banking infrastructure in rural and semi –urban areas. He advised the banks to convert savings from semi-urban and rural markets into financial assets through effective financial inclusion. He also stressed on effective implementation of Aam Admi Bima Yojna and Co-contributory Pension Scheme ‘Swavalamban’ as these are important priorities before the government.

This was the second such meeting held with the Chief Ministers and the bankers by the Finance Minister outside Delhi. The first meeting was held on 14th June, 2010 in Patna with the Chief Ministers of East and North-Eastern States and Bankers. The Finance Minister said that the next meeting will be held with the Chief Ministers of Northern Zone and Bankers in Chandigarh early next month.

The complete speech of the Finance Minister made in the meeting in Mumbai today is given below:

“Hon’ble Chief Ministers, Minister of State for Finance Shri Namo Narain Meena, CMDs of Public Sector Banks and representatives of Central and State Governments, RBI, NABARD. First of all, I extend my heartiest welcome to all of you present here today for attending this meeting. It is significant that we are holding the meeting at Mumbai, the financial capital of India. However, we are aware that for long, the financial sector had ignored the needs of the poor, the marginalized, the small farmer, the micro entrepreneur and others like them who exist not very far and also within the city. I have carefully chosen the agenda items today to focus attention on issues affecting such classes of people. You will agree that there is urgent need for including people from all strata in the mainstream banking system and for putting our country firmly on the path of overall growth and development.

A similar meeting was convened recently for the Eastern Zone States in Patna. The focus on delivery of credit to the poor was of primary concern there. We could discuss area specific issues and fix time-lines for improvement there. We hope to achieve a similar objective today, as well, and expect your active participation in the process.

At the outset, I would urge the State Governments and Bankers to position themselves to finance the emerging demand for credit from all sectors in this region, whether from agriculture, manufacturing or services. We have here today an interesting variety of States present. The States of Maharashtra and Gujarat are industrial hubs; the tourism potential of Rajasthan, Goa and the Union Territories of Dadar & Nagar Haveli and Daman & Diu is well known; Madhya Pradesh and Chattisgarh have impressive agriculture and forest resources. I see the State Governments and the bankers working in close coordination to tap the potential of each State/Union Territory and promoting credit flow into various growth areas.

I would like to outline some of the broad features of credit growth & development in your States.

In the area of Micro and Small Enterprises’ Credit, whereas the States of Rajasthan and Gujarat have shown more than 50% growth in credit flow, other States have reflected lower credit growth. Similarly, though efforts are being made to improve the credit flow to housing, weaker sections, minority community and education loans, the credit growth in these sectors need closer monitoring in the State Level Bankers Committees. In fact, in States where the State Chief Ministers themselves chair the quarterly SLBC meetings, the performance of the banking sector has been seen to be very impressive.

With regard to the Credit Deposit Ratio, I find that except for Maharashtra, Rajasthan and Gujarat, all other States in Central and Western Region have a lower CD Ratio than the benchmark of 60%. I request the Chief Ministers to use the forum of SLBC meetings to actively coordinate to see that the CD Ratio in their States is improved.

In the States represented here today I found that there are 15504 habitations with population above 2000 that do not have banking facilities. I had outlined a target in my last budget speech covering such habitations by the year 2012 with banking facility. The Financial Inclusion Plans for coverage of all habitations with banking facilities must be closely monitored by the State Chief Ministers and CEOs of all Public Sector Banks. There is also need to ensure that financial literacy and financial inclusion is integrated with the technological development of banking infrastructure in rural and semi-urban areas. I would particularly ask the five SLBC convenor banks of this region, namely Bank of Maharashtra, Dena Bank, State Bank of India, Central Bank of India and Bank of Baroda to be particularly proactive in this area.

The target of agriculture credit flow is also on our agenda today. This is a critical item for review in the SLBCs, as well. For the current financial year, the target for agriculture credit flow has been fixed at Rs 3,75,000 crores. I find that all the States of this region have increased agriculture credit flow by over 25% during the last year, which I consider to be very good. Further, for the year 2010-11, Government has increased additional interest subvention from 1% to 2% for the prompt paying farmers availing short term loans under the interest subvention scheme. This would imply that a farmer who repays his loans promptly would need to pay only 5% as rate of interest as the banks sanction such loans at 7% interest.

I have noticed that as far as credit to agriculture is concerned, the States of Maharashtra and Chhattisgarh have shown remarkable growth. However, the States of Madhya Pradesh, Rajasthan, Gujarat and Goa need to accelerate their agricultural growth momentum. Housing loans have grown over 25% in all States except Goa. Education loans have shown good growth with 14% growth in number of accounts and 25% growth in amount.

The review of progress of Centrally Sponsored Schemes in the States is another agenda item on which I request assessment from the States. Further, this region, particularly States of Maharashtra & Gujarat, is known for its vibrant cooperative sector. All States in the region have signed the MOU with the Central Government to implement reforms in the Short Term Credit Cooperative Sector (STCCS) except Goa. I expect full implementation of the STCCS Package and request Government of Goa to sign the MOU with GoI and NABARD at the earliest so that recapitalization assistance is released by the Government.

We will also discuss the implementation of Aam Admi Bima Yojana and Co-contributory Pension Scheme ‘Swavalamban’, these being important priorities before the Government. In my meeting with the CEOs of the Public Sector Banks later in the day today, I shall take forward the discussions of our meeting, including issues relating to infrastructure financing.

India’s financial sector is growing today at a fast pace. It provides growth opportunities unparalleled and unmatched by the mature financial markets around the world. I take this opportunity to advise the Banks to convert savings from semi-urban and rural markets into financial assets through effective financial inclusion. With the improvement in banking technology, financial inclusion initiatives will strengthen financial deepening. I appreciate Reserve Bank of India’s efforts at financial inclusion and enhancing financial literacy.

I once again thank all of you for your presence today in the meeting. We will now have a short presentation of the issues for today’s meeting.”

Government is firmly committed to the goal of comprehensive tax reform through the introduction of the Direct Taxes Code

  

FM’S Opening Speech at Consideration of Finance Bill-2010

  

Finance Minister, Shri Pranab Mukherjee’s opening speech, delivered in the Lok Sabha today, at the beginning of consideration of the Finance Bill-2010, is as follows:

  

“As I rise to move the Finance Bill, 2010 for consideration of this august House, it is with some satisfaction that I report the positive developments in the Indian economy in the last few months. The turnaround of the economy which started in the second quarter of 2009-10 is likely to result in a growth of 7.2 per cent for the full year 2009-10 as indicated in the Advance Estimates of the Central Statistical Organisation.

  

The upward shift in India’s growth trajectory has been anchored strongly in robust growth in consumption. The salutary impact of the fiscal stimulus along with the monetary measures implemented by the RBI, facilitated the growth recovery by regenerating the investment impulses and private spending.

  

In the Budget for 2010-11, I have initiated a partial roll back of stimulus measures and a resumption of the fiscal consolidation process with fiscal deficit at 5.5 per cent of GDP. The Medium Term Fiscal Policy Statement 2010-11 provides the roadmap with fiscal deficit declining to 4.8 per cent of GDP in 2011-12 and further to 4.1 per cent of GDP in 2012-13. A focus on bringing down the level of public debt as envisaged in the Thirteenth Finance Commission’s Report and as announced in the Budget for 2010-11 would anchor the fiscal consolidation process in a sustainable debt framework

  

Inflation

  

The year 2009 started with low WPI inflation of 1.3 per cent in April, 2009, which relapsed to the negative zone during June to August, 2009. The WPI inflation turned positive in September 2009, thereafter, an upward trend has been observed. Clearly, the current levels of inflation are elevated and more generalized and the WPI inflation in March 2010 stood at 9.9 per cent. What has led to deep concern is the double-digit food inflation. The gradual increase in food inflation observed till December 2009 was due to expectations of supply-side constraints of food items, especially due to unfavorable south-west monsoon. As per the Second Advance Estimates of production of food grains for 2009-10, the total food grains production has been estimated at 216.85 million tones, which is about 5 per cent lower than the second advance estimate of last year.

  

The Government has utmost concern about the current price situation. We have taken a number of short term and medium term measures to improve domestic availability of essential commodities and to moderate inflation. These include: reducing import duties for rice, wheat, pulses, edible oils and sugar to zero; allowing import of raw sugar at zero duty under open general licence; removing levy obligation for imported raw sugar and white/ refined sugar; banning export of non-basmati rice, edible oils and pulses and imposing stock limit orders in the case of paddy, rice, pulses, sugar, edible oils and edible oilseeds. A Core Group of Chief Ministers and Central Ministers has been constituted on 15th March, 2010 to discuss issues related to prices of essential commodities. Besides, to protect the interest of poor and vulnerable sections of the society, the Central Issue Prices for rice and wheat have been kept unrevised at 2002 levels.

  

We have sufficient stocks of wheat and rice to meet the demands of the Public Distribution System and other welfare schemes. As on 15.4.2010, 25.4 millions of wheat in RMS 2009-10 and 25.9 million tonnes of rice have been procured in KMS 2009-10 (October to September). The Central Pool stock of wheat is at a high of 183.88 lakh tonnes and of rice at 269.50 lakh tonnes as on 1.3.2010.

  

In the case of pulses, the shortfall of domestic production has been made up by higher imports. Considerable support has been provided to the Public Distribution System. For pulses and edible oil, the Government is bearing a subsidy of Rs.10 per kg. and Rs.15 per kg. respectively for distribution through PDS/Fair Price Shops. The Core Group of Chief Ministers and Central Ministers held its first meeting on 8th April, 2010. Three Working Groups consisting of Chief Ministers of various States are now engaged in drawing up recommendations on agricultural production, consumer affairs and food and public distribution. The reports are expected by the middle of June, 2010.

  

Indications of softening of food inflation are clearly visible. There has been a significant decline from the peak food inflation of over 20 per cent recorded in December 2009 to 17.7 per cent in March 2010. Besides, the inflation in essential commodities also declined from the peak of 23.8 per cent in January 2010 to 19.8 per cent in March 2010. It is expected that this decline would continue in the recent months uninterruptedly.

  

The monetary policy stance has also been gradually fine-tuned by RBI to face the inflationary challenges. The Repo Rate has been increased from 5 per cent to 5.25 per cent and Reverse Repo Rate from 3.50 per cent to 3.75 per cent. The CRR has also been increased from 5.75 per cent to 6 per cent. These measures are expected to anchor the inflationary expectations.

  

Growth Prospects

  

While the slowdown in agriculture, inflicted by the monsoon failure, poses concern on the food and food prices front, the impressive recovery achieved by the Indian industry in the recent months is heartening. The Index of Industrial Production recorded a growth of 10.1 per cent during April-February 2009-10, compared to 3.0 per cent during April-February 2008-09. While both manufacturing and mining grew around 10 per cent, electricity grew at 5.8 per cent during April-February 2009-10. All the major segments of industry except consumer non-durables staged a strong recovery. The intermediate goods grew at 13.7 per cent and consumer durables recorded an appreciable 25.5 per cent growth in April- February 2009-10. The growth of capital goods at 18.2 per cent in April- February 2009-10, on top of their reasonable growth in the previous year, is indicative of the pickup in investment demand.

  

Tax Reform

  

I have already informed the House that the Government is firmly committed to the goal of comprehensive tax reform through the introduction of the Direct Taxes Code (DTC) as well as the Goods and Services Tax (GST). I am happy to inform the Hon’ble Members that, in the case of DTC, the process of consultation with the stakeholders for revising the first draft is almost over. We expect to place a revised Discussion Paper in the public domain by next month. After a quick round of consultations with some of the major stakeholders, we should be able to submit the draft legislation to Parliament in the monsoon session.

  

I have indicated my intent to introduce GST in the country with effect from 1st April, 2011. Central Government is closely engaged with the Empowered Committee of the State Finance Ministers in finalizing the GST design. Some of the States apprehend that they may lose some revenue in the initial years of the GST regime. Central Government is willing to provide compensation to the States for these initial years, provided there is agreement on the broad framework for a common threshold for Goods and Services between the Centre and the States; common exemption lists between the Centre and the States; mechanism to check deviations and acceptable level of overall GST rates. The design and modalities of providing this compensation would be worked out in discussion with the State Governments and the Empowered Committee.

  

Outlook for 2010-11

  

There are several factors that have emerged from the performance of the economy in the recent period which augur well for the Indian economy. Attesting the impressive recovery of the industrial sector, there is a revival in investment and private consumption demand, though demand recovery is yet to attain the pre-2008 momentum. The favourable capital market conditions with improvement in capital flows and business sentiments are also encouraging. There is also a significant pick-up in corporate earnings and profits. The outlook is further brightened by the fact that a normal monsoon is predicted this year.

  

Going by these indications and considering that agriculture had a set-back in 2009-10 and is only gradually getting back to the projected path, the Indian economy is expected to grow around 8.5 during 2010-11 and to breach the 9 per cent mark in 2011-12.

  

Since the presentation of the Budget on 26th February, 2010, we have received a large number of representations and suggestions both from trade and industry as well as my colleagues in this august House. While some seek modifications to the existing proposals, others have urged for fresh reliefs. Some valuable suggestions were also made by the Hon’ble members during the general discussion on the Budget in the first phase of this session. I expect to receive many more suggestions in the course of the ensuing discussion on the Finance Bill. I shall cover the reliefs we propose to grant, the amendments that we seek in the Bill and our response to the issues that are raised in discussions, in my reply.

  

With these words, Madam Speaker, I move for consideration of the Finance Bill, 2010.”