The most important thing about a regulator is he speaks in the language of the MOST powerful player. Period. So if it is RBI he will speak in the same tone as State Bank of India. If it is Insurance, it will sound like LIC and in case of mutual funds it used to be UTI. UTI has long lost its glory, but hey old habits die hard, right?

Having said that let us look at the banking regulator’s role….obviously he should be interested in the following things:

1. ease of banking transactions for the customers

2. penetration of banking

3. reasonable interest rates

4. simplicity

Now let us see where does RBI rank in all these factors……

Banking transactions have become easy for the people who know and understand banking. For those who are now old, uneducated, or just banking illiterate banks are a scary place. Know too many people who have been sold lemons. Old people who have bought ULIPs, pension plans, school teachers whose money has been removed from senior citizen accounts and put in ULIPs….the list is endless, is it not.

Penetration of banking: compare it to a mobile phone or HUL or ITC – why even Coke and Pepsi have far better penetration without a government subsidy. Loan against cattle is such a joke that if you go to a village and find cows with missing ears, you will know why. So the penetration by somebody like Sewa is good, but overall banking penetration seems to be just a story. That too with the government owning 30 banks with similar mandates.

Reasonable interest rates: another amazing story. A grocer taking say Rs. 10,000 from you in month 1 and allowing you to buy grocery worth Rs. 12000 – at Rs. 1000 a month will be called a NBFC. An old age home taking Rs. 500,000 and paying say 10% interest to its inhabitants will be called a NBFC – which means these people HAVE to go to a bank to borrow money. However when the common man goes to the bank he gets 8% p.a. interest. The grocer gets NO bank advance at all, and the old age home / hospital is treated like a BUILDER – the cash flow is not recognised. So the hospital ends up paying 15.5 % interest + processing fees, etc…..fantastic margin protection business….


Well well have fun….

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  1. “The most important thing about a regulator is he speaks in the language of the MOST powerful player.”


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