The name of the political party in power is far less important than the regime’s financial and banking connections..

March 28, 2017

This is a stunning piece by Murray Rothbard written in 1984.   It points how the revolving door between Wall street and US government is so old and deep.

Read the rest of this entry »

Amma canteen variants catching up in other States: Just bad populism?

March 27, 2017

Karnataka just announced in its recent budget that it will launch Namma Canteens styled like TN’s Amma canteens. This led to criticism that it is not just populism but also hinders well run private darshinis in the State.

In a piece, Nikita Doval of Mint shows the  idea has caught up with other States too. Of course menus differ based on local consumption:

The late J. Jayalalithaa’s government in Tamil Nadu had launched Amma Unavagam (Mother’s canteen) with much fanfare in 2013.

Meant to provide wholesome food at heavily subsidized rates, the canteens which are run by the government but staffed by women from self-help groups have been a runaway success. Meals are priced at Re1, Rs3 and Rs5 and the menu includes idli, pongal, pre-mixed rice and chapatis which are served with complimentary dal. Such has been the success of these canteens that states like Rajasthan, Madhya Pradesh, Odisha, Andhra Pradesh have also started their own versions of subsidized food canteens. Now Karnataka too has announced the launch of Namma Canteens in the state.

The nomenclature varies from state to state; so in Rajasthan it is the Annapurna Rasoi Yojana where breakfast is served for Rs5 and lunch for Rs8. In Madhya Pradesh, it is christened the Deendayal Canteen; in Andhra Pradesh, the NTR Anna Canteens and in Delhi, the Aam Aadmi canteens were launched in January where the state aims to provide a wholesome nutritious meal for Rs10.

Just plain populism?

Whatever the names, the end objective is the same, to meet the nutrition requirements of the poor at a minimal rate in clean, hygienic surroundings.

It would be easy to dismiss the scheme as populist, especially given that Jayalalithaa’s party’s success in the 2016 elections was attributed to all the schemes which had been started in the years before, ranging from giving free laptops, mixer-grinders and of course the canteens, but a bigger purpose is also being met.

According to the National Family and Health Survey conducted in 2015, Indians still continue to struggle with BMI (body mass index) and anaemia. In states like Andhra Pradesh, 14.8% of men and 17.6% of women were found to be underweight. In Madhya Pradesh the numbers were 28.4% and 28.3%.

“In India, nutrition is a big issue, low BMI is a concern even for adults. In such a scenario, a balanced wholesome meal is part of the state’s responsibility but it has to be done well to succeed,” says Dipa Sinha, a right to food campaigner and assistant professor at Ambedkar University, Delhi. She cites the example of Brazil’s popular restaurant and community kitchens that serves nutritious food at affordable costs.

It is, however, not a simple matter of launching a subsidized food scheme. There are several other factors that need to be taken into account like the kind of food being served, the condition under which it is served and the overall hygiene of the place. One of the other advantages of the Amma Canteen is the employment it provides to a large number of women. “At a time when we are looking with worry at the declining number of women in the workforce in India, schemes like this are a great way to bring more women into the work-force,” says Sinha.

Similar arguments are made for mid day meal schemes as well. Populism can be tolerable as long as implementation is fine. Populism plus poor implementation is a double whammy which is usually the case with most such schemes..

Role of immigrants in US innovation history

March 27, 2017

I would be surprised if there was no role. How immigrants are attacked despite they bringing benefits to the local economies.

Profs. Ufuk Akcigit, John Grigsby and Tom Nicholas have a piece:

In today’s finance, there is return free risk, but no risk free return…

March 27, 2017

Prof JR Varma just nails it in this post. He quotes from John Cochrane’s blog whose notion of risk is way too simplistic even despite recent crises.

He says economists continue to believe in risk free return whereas more accurately it is return free risk:

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The Journey of Humankind: How Money Made Us Modern (National Geographic edition)

March 27, 2017

It is interesting when likes of National Geographic Channel discuss matters of money. They have a program as well on power of money for the human civilisation.

Civilization existed before money, but probably wouldn’t have gotten very far without it. Ancient humans’ invention of money was a revolutionary milestone. It helped to drive the development of civilization, by making it easier not just to buy and sell goods, but to pay workers in an increasing number of specialized trades—craftsmen, artists, merchants, and soldiers, to name a few. It also helped connect the world, by enabling traders to roam across continents and oceans to buy and sell goods, and investors to amass wealth…

Over the centuries, money continued to evolve in form and function. The ancient world’s stones and shells gave way to coins, and eventually to paper currency and checks drawn upon bank accounts. Those physical tokens, in turn, gradually are being superseded by electronic ones, ranging from credit card transactions to new forms of digital currency designed for transferring and amassing wealth on the Internet.

Nice pictures in the story as well…

Fight over AIADMK two leaves symbol: How History repeats itself..

March 24, 2017

The Election Commission had to freeze AIADMK’s two leaves symbol as the two factions staked claims over it.

However, this is nothing new. The same fight over the symbol happened when MGR died as well:

With the Election Commission freezing the ‘two leaves’ symbol of the All India Anna Dravida Munnetra Kazhagam (AIADMK), the focus has now shifted to how the warring factions will come to terms with the changed circumstances, particularly in the context of the byelection to the R.K. Nagar constituency. However, the present tussle in the AIADMK over the party symbol has brought back memories of the piquant situation the party faced in 1988 over the same issue.

Just as there are two factions now, the AIADMK was then divided into two groups, one led by Janaki Ramachandran, widow of the AIADMK founder M.G. Ramachandran, and another by Jayalalithaa, then, the party’s propaganda secretary.

At that time, the battle went on for nine months and it was a month before the Assembly elections in January 1989 that the Election Commission (EC) decided to freeze the symbol. While the Janaki faction was given the symbol of ‘a pair of pigeons’, Jayalalithaa’s group got the ‘cock’ symbol.

The fight erupted weeks after the dissolution of the Tamil Nadu Assembly in January 1988 and police sealing the AIADMK headquarters building on Lloyds Road in Royapettah. In mid-March, the Jayalalithaa faction had formally staked its claim for the name and symbol of the party.

This time too, two new symbols have been given:

The split in the AIADMK became official on Thursday when the two factions chose new names and picked poll symbols+ from the election commission’s ‘free basket’ ahead of the RK Nagar byelection.

The V K Sasikala faction, now called AIADMK (Amma), settled for ‘hat’ as its symbol for the RK Nagar bypoll; the OPS group that christened itself AIADMK (Puratchi Thalaivi Amma) chose the ‘electric pole’, with its forked arms, appeared to have an uncanny resemblance to ‘two leaves’, the popular symbol of the parent party. The settlement came hours before the deadline for filing nominations.

Sasikala faction candidate T T V Dinakaran wore a hat – and a smile – when he went to file his nomination papers, but OPS and his candidate E Madhusudanan had a hearty laugh as the ‘electric pole’ appeared to have an uncanny resemblance to ‘two leaves,’ the popular symbol of the parent party.



25 Years Later, Is It Still the Hayek Century?

March 24, 2017

Hayek died 25 years ago on 23 March 1992.

David Boaz of Cato Institue pays a tribute:

Hayek lived long enough to see the rise and fall of fascism, national socialism, and Soviet communism. In the years since Hayek’s death economic freedom around the world has been increasing, and liberal values such as human rights, the rule of law, equal freedom under law, and free access to information have spread to new areas. But today liberalism is under challenge from such disparate yet symbiotic ideologies as resurgent leftism, right-wing authoritarian populism, and radical political Islamism. I am optimistic because I think that once people get a taste of freedom and prosperity, they want to keep it. The challenge for Hayekian liberals is to help people understand that freedom and prosperity depend on liberal values, the values explored and defended in his many books and articles.

There is more here

Unique ‘Twitter satyagraha’ against HDFC Bank completes 50 days: Why did the bank choose the wrong nudge?

March 23, 2017

A very interesting article. It talks about yet another person protesting on another Indian bank’s practices.

Instead of the usual protests, he wrote series of Tweets everyday for the last 50 days asking the bank to say sorry:

Bengaluru-based communications professional Karthik Srinivasan has started a unique protest to express his displeasure with what he calls an unethical programme by HDFC Bank. A popular handle on Twitter and known blogger, Srinivasan has just completed 50 days of his so-called ‘Twitter satyagraha’ against the bank’s opt-out programme for preferred customers.

The core problem is that default choice was made as opt-out:

Read the rest of this entry »

RBI Governor: Please Stop Banks Fleecing Customers and Depositors!

March 23, 2017

First there is this article by Dr Yerram Raju : Is SBI heading for bankruptcy?

Customers of State Bank of India (SBI), especially in south India, are forced to ask whether SBI is headed for bankruptcy as they find 99% of the automatic teller machines (ATMs) shut down and all branches declining withdrawals from the depositors’ savings account beyond a limit. Bank branches are refusing to honour cheques drawn on them, either their own or on third party, in spite of sufficient balance in the account. To top it, the bank’s branches refuse to give written objection for returning the cheque across the counter. 
He narrates from his own experience and perhaps overstretches it. But it will be good to read about more SBI customers. Are they facing similar troubles?
Whatever it may be, overall message is clear. Banks have lost their basic sense of serving the customer. We are back to earlier days when banks just didn;t care. Once again, Indian banks seem to have become way too arrogant and shunning the customers. Their pricing has become opaque and are just charging all kinds of things.
Second, there is detailed memorandum to RBI chief against these practices:
A group of bank customers, consumer activists, policy watchers, bankers, trade unions and non-governmental organisations (NGOs), has requested the Reserve Bank of India (RBI) to urgently change policies to ensure that banks treat bank customers fairly. 
In a Memorandum sent to RBI Governor Dr Urjit Patel, they said, “We are disturbed at the unfair treatment that bank customers suffer in the form of frequent, arbitrary and one-sided increase in banking charges, or the refusal of banks to automatically pass on contractual benefits such as lower interest to those with floating rate home loans, or the rampant mis-sellling of third-party products such as insurance.”
“The RBI as the banking regulator has been proactive in improving the customer service rendered by banks. However, the RBI has not taken banks to task on the many customer-unfriendly practices that are increasing with impunity. Over the years, the RBI has remained silent on several anti-depositor actions of banks. The Banking Ombudsman’s rulings also tend to side with banks, making no attempt to observe the pattern of complaints which would amply bring out rampant mis-selling of insurance and wealth management products. We have identified some specific areas and request RBI’s intervention to take corrective steps after engaging with customers,” the Memorandum says.
Hopefully banks wake up..

US adopts T+2 settlement cycle for Securities Transactions..(India moved to T+2 system 14 years ago)…

March 23, 2017

Clearing and Settlement system (referred as backoffice in corporate lingo)  is perhaps one of the most understated yet highly important activity in financial markets. When two parties trade, one gets securities and other cash. This settlement process takes time. Earlier these settlement systems ran in months than brought down to fortnight and now to a few days. All this has been possible due to technology.

So you trade on a day it is called as T. The time taken to settle is added to T. So T+5 means settlement shall happen on 5th working day after the trade.

US SEC announced that it shall move from T+3 to T+2 settlement:

The Securities and Exchange Commission today adopted an amendment to shorten by one business day the standard settlement cycle for most broker-dealer securities transactions.  Currently, the standard settlement cycle for these transactions is three business days, known as T+3.  The amended rule shortens the settlement cycle to two business days, T+2. 

The amended rule is designed to enhance efficiency, reduce risk, and ensure a coordinated and expeditious transition by market participants to a shortened standard settlement cycle. 

“As technology improves, new products emerge, and trading volumes grow, it is increasingly obvious that the outdated T+3 settlement cycle is no longer serving the best interests of the American people,” said SEC Acting Chairman Michael Piwowar.  “The SEC remains committed to ensuring that U.S. securities regulation is reflective of modern times, and in shortening the settlement cycle by one day we aim to increase efficiency and reduce risk for market participants.”

Broker-dealers will be required to comply with the amended rule beginning on Sept. 5, 2017.

What is interesting is India moved to a T+2 system in 2003!

Following Finance Minister’s announcement on March 13, 2001 that the rolling settlement would be extended to BSE-200 list would be traded only in the compulsory rolling settlement on all the exchanges from July 2, 2001. Further, SEBI mandated rolling settlement for the remaining securities from December 31, 2001. SEBI introduced T+5 rolling settlement in equity market from July 2001. Subsequently shortened the settlement cycle to T+3 from April 1, 2002. After having gained experience of T+3 rolling settlement, it was felt appropriate to further reduce the settlement cycle to T+2 thereby reducing the risk in the market and to protect the interest of investors. As a result, SEBI, as a step towards easy flow of funds and securities, introduced T+2 rolling settlement in Indian equity market from 1st April 2003.

We are unaware of the progress made in equity markets. Our infrastructure and systems have been ahead of most developed countries for a while..

Do economists really ever retire?

March 23, 2017

Bad news, they don’t. Infact their aura and prestige could be even more post retirement.

David Price has a piece:

No doubt there are some economists who retire so they can put their profession in the rear-view mirror. But many, it seems, never truly leave eco­nomics behind. They continue practicing economics long after they’ve nominally retired or taken emeritus status — and even when they eventually stop, the economist’s way of thinking sticks with them.

For some, the compulsion to do economics in retirement takes the form of publishing. Elmus Wicker, 90, a former Rhodes Scholar who retired from Indiana University in 1992, turned to writing and publishing three books for university presses on economic history. Not resting on his laurels, he has drafted a fourth.

“It never occurred to me that retirement meant doing something else,” he says. “And it never occurred to me that maybe I wasn’t still qualified.”

Bruce Yandle retired from Clemson University in 2000, then returned in 2005 to serve for two years as a dean, then retired again for good. But he has maintained an adjunct affiliation with another institution, the Mercatus Center at George Mason University, where, among other activities, he advises graduate students on their master’s and doctoral theses. “Interaction with young people who are excited about ideas has a contagion associated with it,” he observes. (See also “Interview: Bruce Yandle,” Region Focus, Second Quarter 2011.)

After Leonard Schifrin retired from the College of William and Mary in 1998, he found a lot of work coming his way in his field of health care economics, especially contract research for the federal government and expert-witness work in litigation. “I was busy for eight years traveling and doing interesting things,” he recalls. “That was a lot of fun and really postponed my retirement from being an economist.

All this sounds good for this blog but perhaps not so much for its visitors…Though it is still many years away from retirement….

1965: The Year the Fed and US President Lyndon Johnson clashed..

March 23, 2017

Nice piece by Helen Fessenden of Richmond Fed.

Few challenges to the Federal Reserve’s independence have ever matched the drama of Dec. 5, 1965. Fed Chairman William McChesney Martin Jr. had just convinced the Board of Governors to raise the discount rate amid signs that the economy was starting to overheat. Fiscal stimulus — increased spending on the Vietnam War, expanded domestic programs for President Lyndon Johnson’s “Great Society,” and a tax cut enacted in 1964 — had raised inflationary warning signals for Martin and, increasingly, a majority of the Federal Open Market Committee (FOMC). But Johnson was adamant that higher rates would slow down the economy and compromise his domestic agenda. Enraged, he called Martin and other top economic officials to his Texas ranch, where he was recovering from gallbladder surgery.

“You’ve got me in a position where you can run a rapier into me and you’ve done it,” charged Johnson, as recounted by Robert Bremner in Chairman of the Fed. “You took advantage of me and I just want you to know that’s a despicable thing to do.”

Johnson was accustomed to getting his way — whether through bluntness or sweet-talking, as the occasion might require. But not this time.

“I’ve never implied that I’m right and you’re wrong,” Martin said. “But I do have a very strong conviction that the Federal Reserve Act placed the responsibility for interest rates with the Federal Reserve Board. This is one of those few occasions where the Federal Reserve Board decision has to be final.”

Johnson finally relented, and Martin’s refusal to back down is often considered one his strongest moments as Fed chairman. His relationship with the president was sometimes strained in the following years. But the 1965 showdown was seen as a tough lesson to Johnson that the Fed would flex its muscles when needed to push back against the inflationary pressures caused, in part, by his administration’s own policies.

What is less often remembered in the popular mind is that the rate hike of 1965 did not, in fact, turn a corner on inflation. In the years that followed, fiscal stimulus was ample, war spending kept rising, and the deficit grew. But FOMC members were often divided, and their policy decisions reflected this ambivalence. Furthermore, while Martin saw monetary and fiscal policymakers as obligated to work together to promote price stability and growth, he discovered that dealing with this particular White House and Congress was often a one-way street. And even though the Fed was substantially upgrading its analytic capacity in the 1960s — hiring more Ph.D. economists, building up its research departments, and adopting forecasting — it didn’t always translate into consistent monetary policymaking.

Nice bit of history..

Books on Indian Financial History and World Economic History

March 22, 2017

Prof JR Varma of IIMA lists Indian Financial History books. It has contributions from Prof Chinmay Tumbhe of IIMA and yours truly as well. Those interested can mention other books/papers which should be read.

Niranjan alerts to this interesting list of World economic history books.

So much to read…

Denmark outsources minting coins to Finland

March 22, 2017

One fundamental question businesses face is: Should one produce or outsource?

Denmark has decided to outsource the minting coins to Finland.

The Mint of Finland has now begun to produce Danish coins. The coins will be put into circulation in Denmark later this year.“We chose the Mint of Finland after a transparent tender process and we are convinced that they will be able to meet our expectations,” says Governor Hugo Frey Jensen, Danmarks Nationalbank.

It was Hugo Frey Jensen himself who pressed the button to start production of Danish 20-krone coins during a visit to the Mint of Finland in the southern Finnish city of Vantaa. In the near future, the Mint of Finland will also start producing the other Danish coins. “Ever since the tender process, production of Danish coins has been a big and important task for us. We are proud to celebrate the start of production,” says Jonne Hankimaa, CEO of the Mint of Finland.

Although all Danish coins are now minted in Finland, their appearance has not changed. The only difference is that the year on the new coins is 2017.

Reasons? Falling demand of coins and banknotes has made the activity financially unviable:

Payment patterns have changed and demand for new banknotes and coins has been falling for a number of years. Hence it could not be justified financially to keep up an own production of banknotes and coins at Danmarks Nationalbank.

A tender process for production of Danish coins was initiated in December 2015 and a 4-year framework agreement was subsequently signed with the Mint of Finland.

No agreement has yet been concluded with a supplier of banknotes. Danmarks Nationalbank has just published a timeline for the forthcoming tender for banknotes, and a supplier is expected to be found in early 2018.


But the cost of printing and minting is hardly much especially given the seignorage, the State gets from this activity. Now, it seems Denmark has found it even cheaper to mint the coins via Finland (and print the currency later).

How central bankers see themselves as saviors, but not the cause of the instability at the first place

March 22, 2017

C Jay Engel posts based on a speech by Peter Praet of ECB:

ECB Executive Board member Peter Praet recently gave a speech in Brussels. The underlying theme captures the convenient positioning of world central banks. They want to be seen as saviors of collapsing financial markets, but neither the cause of the instability nor the continued struggle for economic growth. From the speech:

Faced with a prolonged crisis, the ECB’s unconventional policy measures have been essential to provide additional accommodation to the economy and prevent a self-sustaining fall in inflation — and they have been a clear success. Easier credit conditions have fed into a domestic demand-led recovery that has spread across countries and sectors. The economic outlook today is now better than it has been for many years.

And yet, as he admits, the ECB has been in crisis mode since 2008. So they want appreciation for bringing forth recovery, but want the world to look elsewhere for the reason why these economies aren’t self-sustainable. He even blames the crisis in the first place, not on central bank activity from 2000–2007 but on the masses themselves! 

The first [cause of the crisis] was the bout of over-optimistic expectations which took hold in several advanced economies in the pre-crisis years, reinforced in the euro area by a renewed sense of security and economic prosperity following the launch of monetary union. Despite slowing potential growth, agents in a number of economies overestimated their future income and borrowed against it, accumulating excessive debt. In some countries this over-leveraging was centred [sic] on firms, in other countries on households and in others still on the state.

Well, one might ask where this “excessive debt” came from. Does it not come from central bank policy? What Harry Browne once noted of governments equally applies to central banks: “Government is good at one thing: It knows how to break your legs, hand you a crutch, and say, ‘See, if it weren’t for the government, you wouldn’t be able to walk.'”

One of the consequences of living in an unfree world is the aggravating subjection to condescending Official Narratives. It’s not just that our Monetary Saviors get to make money supply and interest rates decisions on our behalf, it’s also that we are being saved from our own over exuberant actions. We ruin the economy, and then we get pulled from our own fires. And the bureaucrats hardly get a thank you.


Investors may have missed D-Mart stock, but customers have long gained from the store…

March 22, 2017

What a fairy tale story indeed. From being a low profile retail player to becoming a stock market darling is quite something. Though, there are signs of irrational exuberance.

The huge opening day gains has prompted one financial house to ask the question: Missed the D-Mart Bonanza?

This blog is guilty of not writing on D-Mart despite deciding many times to write on it only to forget. Part of the forgetting was there was never even a side reference on the .retailer

One always wondered before the IPO buzz, why aren’t there any articles on D-MArt at all? The retailer was clearly the best in the business whose only purpose was to make sure customers gain from their purchases. It gives you discount on nearly all its products. In case there is no offer on a product, you get an assured discount of 5-7% on those products. There is a saving on all products.

Some call it Walmart of India which is not right. Unlike Walmart stores which are huge and located outside the cities, D-Mart stores are much smaller and housed in city centres. Infact, it is amazing how the retailer manages to store so much in such limited space. Yes, there are bigger stores as well but most are small and mid-sized ones.

The only similarity with Walmart is discounts on all products and trying to lower prices for the customer everyday. It is unbelievable how the retailer manages to have so many 50% off, Buy one get one offers etc which all retailers together are not able to manage. And all this was happening without any hype and buzz. It was low key with amazing impact on customers.

Walmart had a dynamic founder in the name of Sam Walton but D-Mart just had an opposite natured founder who is just so media shy.

Other stores err on looking fancy but D-Mart is your typical local store. You just walk in and walk out. Though walking out is never easy given huge crowds. People just throng to D-Mart stores knowing there are both savings and value at the stores.

So, even if investors lost out on the IPO its customers have only gained. Share prices will go up and down and risky for most households. But day to day consumption items are essential and so far D-Mart has not failed them in this endevour.

Infact, the share price might look irrational exuberant but the crowd in D-Mart stores is unbelievably exuberant. You sometimes feel as if things are sold for free!

So lots of power to DMart and hope it continues in its core function and not get carried away by the recent riches…

Reforming Culture (in financial services) for the Long Term

March 22, 2017

I just blogged about why importance of preserving local culture and values as SBI merges its associate banks.

So, one just came across this NY Fed chief William Dudley Speech in London on reforming culture in finance. In evening he participates in a panel discussion titled: Worthy of Trust? Law, ethics and culture in banking.

Dudley who was under fire for corporate misgovernance a NY Fed has earlier also made remarks on culture.

In the recent speech he says:

As I have argued before, incentives shape behavior, and behavior drives culture.  If you want a culture that will support your long-term business strategy, you need to align incentives with the behaviors that will sustain your business over the long haul.6

Incentives—compensation and promotion, in particular—are powerful tools for communicating the conduct and culture you desire for your firm.  Of course, the cultures of firms can and should vary.  But, the culture of every bank should share a common theme: stewardship—a word that implies professional care, exercised year after year for the benefit of the firm and its stakeholders.  A commitment to the long term must be at the core of banking.  Incentives within a firm should support that goal, not undermine it.

My emphasis on incentives is not new, but it bears repeating.  Bad incentives were a key contributing factor in the financial crisis.  In the United States, the Financial Crisis Inquiry Commission concluded that “Compensation systems—designed in an environment of cheap money, intense competition, and light regulation—too often rewarded the quick deal, the short-term gain—without proper consideration of long-term consequences.”7   This theme applied to all levels of banking organizations.  One notable example was mortgage brokers, who were paid based on the volume of loans they generated, not their quality.8

The financial crisis came to a head in the fall of 2008.  Fast forward eight years to the fall of 2016.  Wells Fargo’s chairman and CEO resigned after regulators uncovered what appeared to be widespread fraud in the retail bank.  Compensation, once again, seems to be at the center of a scandal.  Neighborhood bankers were paid based on the volume of new accounts opened, apparently with utter disregard for whether customers wanted them or even knew about them.  And, like mortgage brokers in the early 2000s, it appears that job security depended almost exclusively on meeting targets, regardless of how those targets were met.  There was a serious mismatch between the values Wells Fargo espoused and the incentives that Wells Fargo employed.9  

Investigations into what happened at Wells Fargo are continuing, so I will wait before drawing more definitive conclusions.  For now, though, it is sufficient to note the powerful role—for good or for bad—that incentives can play in an organization.  I understand that making progress on culture is difficult.  But, if you want the next round of metrics to look better than the last, use a powerful lever—use incentives. 

Today’s discussions—here at Mansion House and later at the Bank of England—are evidence that the issue of culture is important to the private and public sectors alike.  We have to keep working on this.  The public sector must continue to shine a spotlight on the issue, and the industry must continue to demonstrate that it is taking responsibility for its culture.  And, culture cannot be a subject that only receives attention because bad conduct has occurred in the recent past. 

I am convinced that a good or ethical culture that is reflected in your firm’s strategy, decision-making processes, and products is also in your economic best interest, for a number of reasons:

  • Good culture means fewer incidents of misconduct, which leads to lower internal monitoring costs.
  • Good culture means that employees speak up so that problems get early attention and tend to stay small.  Smaller problems lead to less reputational harm and damage to franchise value.  And, habits of speaking up lead to better exchanges of ideas—a hallmark of successful organizations.
  • Good culture means greater credibility with prosecutors and regulators—and fewer and lower fines. 
  • Good culture helps to attract and retain good talent.  This creates a virtuous circle of higher performance and greater innovation, and less pressure to cut ethical corners to generate the returns necessary to stay in business. 
  • Good culture builds a strong organizational story that is a source of pride and that can be passed along through generations of employees.  It is also attractive to clients.
  • Good culture helps to rebuild public trust in finance, which could, in turn, lead to a lower burden imposed by regulation over time.  Regulation and compliance are expensive substitutes for good stewardship.

Good culture is, in short, a necessary condition for the long-term success of individual firms.  Therefore, members of the industry must be good stewards and should seek to make progress on reforming culture in the near term. 

Well, there was a time when NY Fed would never discuss such issues. They were seen as soft and not of any importance. NY Fed was more about hard finance and fancy stuff.


An analysis of the branch network of SBI Associate banks: How local are they?

March 22, 2017

SBI has announced it shall close 47% of the branches of associate banks:

State Bank of India (SBI), which will see five associate banks merge into it on April 1, has decided to shut down almost half the offices of these banks, including the head offices of three of them. This process will start from April 24.

“Out of the five head offices of the associate banks, we will retain only two. Three head offices of the associate banks will be unbound along with 27 zonal offices, 81 regional offices and 11 network offices of the associate banks,” SBI Managing Director Dinesh Kumar Khara told IANS in an interview.

“We will keep their structure in place till April 24 and, post that, we will start dismantling the associate banks’ controlling offices, which includes head offices, regional offices, zonal offices and network offices,” Khara said.

The shut-down move is to avoid overlapping offices in the same area and “we intend to remove any kind of duplicacy in the controlling structure”, Khara said.

There are currently 550 SBI offices while its associate banks have 259. The target for the number of controlling offices after the merger is 687 — a reduction of 122 offices.

This blog has been trying to work on the branch network of these SBI Associate Banks just to understand geographical coverage and so on.

First some concepts. There are two things: Offices and Branches. In offices, banks also do admin work. Most offices (barring Head office. reginal office etc) also serve as branches. There is more here.

The article above talks about Offices and not branches. This is how the numbers look.

Read the rest of this entry »

Five remaining Associate State Banks to merge with SBI: A comparative history (data driven)..

March 21, 2017

The Government of India had earlier announced to merge the remaining 5 State Banks with SBI. There were 7 associate State Banks and two of them State Bank of Indore and State Bank of Saurashtra were merged with SBI in 2008 and 2010 respectively.

After some deliberations, finally the 5 banks shall merge with SBI on 1 April 2017.

This blog had earlier written and lamented about lack of history of these Associate State banks. These were unique banks which were formed with support from Princely State. Some like Hyderabad were full central banks as it issued its own currency. Most others were quasi central banks and acted as banker to the State and even offered commercial banking services to public. It shall be fascinating to compare all these different banks across their functions.

Only State Bank of Travancore has released its history and even developed a museum.

Always curious to figure financial history, this blog dug up some bit of history from several RBI publications.

Read the rest of this entry »

Meet Lakshmi: the country’s first banking robot at City Union Bank

March 21, 2017

Fascinating story.

City Union Bank is one of the oldest surviving banks in the country.It was established in 1904 in the sleepy town of Kumbhakonam. It was also called as Kumbhakonam Bank before changing its name amidst some mergers.

What is remarkable is that it is the oldest private sector bank in the business. The other older banks like Presidency Banks (Calcutta in 1806, Bombay in 1840 and Madras in 1843; merged into Imperial Bank in 1921 which became SBI in 1955), Allahabad Bank (1865), , Punjab National Bank (1894) became government owned banks.

So to see CUB  have a first customer centric robot in its branches (right now in Just Coimbatore branch) is some homecoming.

Just a few years  ago, use of robots may have seemed to be many years away from reality, but it now appears that we are reaching a tipping point in human-robot collaboration.

Meet Lakshmi, the two-foot robot that is pushing the Kumbakonam-based City Union Bank (CUB) towards a new self-service era. CUB Lakshmi, as it is fondly called in the bank, speaks English, can gesture and engage in conversations. It can interact on more than 125 subjects with customers, and can answer queries around interest rates on loans, checking the account balance and more.

“This artificial intelligence (AI) powered robot will be our first on-site bank helper and answer generic banking-related questions of customers. We felt that in a branch this robot will be in a position to answer basic questions to our customers. Over time, it can support other banking roles with insightful data and analytics, making humans smarter and more efficient in value delivery,” says N Kamakodi, MD and CEO, CUB.

Lakshmi took around six months in the making, and has been customised in Coimbatore to provide basic information about the bank’s history, deposit and lending rates, special schemes and number of branches among other things. Though launched in November last year, the full fledged roll out took a back seat due to the demonetisation drive.

“The first step now is to program the humanoid to greet customers in Tamil. It will also be integrated with the Core Banking System through Application Programming Interface (API) to enable it to do multi-tasking such as providing account details and ordering cheque books,” says Sankaran G, Deputy General Manager, Computer Systems Department, CUB.

A five member team is constantly monitoring the responses from Lakshmi and also working around chatbot among other things.

And what if the question posed to Lakshmi is out of syllabus? “In such a scenario the question is escalated to the manager or the subject matter expert. We will then update and feed it with answers for questions that it has not been able to answer or referred to the manager,” explains Kamakodi.