What does an ordinary person do when even the Reserve Bank of India (RBI) cannot check fake currency? In a shocking revelation, MoneyLIFE learns that fake currency worth Rs17,000 was remitted from RBI to ICICI Bank at Hyderabad. So far, it was RBI that had been pulling up banks on finding that their currency chests contained fakes. But the remittance of fake currency from RBI itself suggests shocking flaws in the currency management process adopted by it. We wrote to the RBI governor, Dr D Subba Rao to ask whether RBI had investigated the source of the fake notes and initiated action to plug the hole in its system that allowed such a breach in the currency verification process. We also asked if steps had been taken to identify the people responsible for the lapse. Dr Subba Rao asked the deputy governor Usha Thorat to respond to our query, which had not come until we went to print.
When MoneyLIFE first wrote about the increased incidence of fake notes infiltrating the banking system, banking sources said that the issue must be looked at in perspective. After all, the US dollar is the most counterfeited currency in the world, despite high security standards because of the leaps in printing technology. Also, fake and forged notes in India were still too small in number in relation to the total currency in circulation to pose serious systemic worries.
However, the law requires an individual to be able to detect fake and forged notes or face police action if caught with a fake. If seasoned bankers and the central bank itself are not able to detect fakes and they enter the money circulation system, then why saddle an individual with the responsibility of the loss and the consequences?
When the battle between the Ambani brothers was raging furiously, someone called Ashish Deora enjoyed his 15 minutes of fame as an alleged front for the late Pramod Mahajan holding one crore shares of Reliance Infocomm at one rupee each. This was allegedly a quid pro quo for various permissions granted to the company to launch a Wireless in Local Loop (WLL) service, without paying the appropriate fees. The allotment happened in September 2002. As a part of the settlement between the brothers, Reliance Infocomm went to Anil Ambani and the company’s name was changed. The shares allotted to Deora, apparently for a wiring contract, were also cancelled on the claim that he had not completed the work. Deora had a company called IOL Broadband, in which Mahajan’s close relatives were partners. The Reliance Infocomm shares allotted to Ashish Deora were divided between four companies – Prerna Auto, Fairever Traders and Consultants, Anrose and Softnet Traders and Consultants – whose shareholding is neatly interlinked. The Income-Tax Department had then made a claim on Deora asking for tax on the income that would have accrued had he held on to those, now valuable, Reliance shares. As absurd as it sounds, Indian tax laws have plenty of such provisions that are selectively unearthed and applied. Typically, however, nothing seems to have come of those cases, after the flash of publicity. After the Ambani war ended, one lost track of Ashish Deora. This was sometime in 2006.
Deora has since moved on and is thriving. IOL Broadband is now IOL Netcom and is looking at IPTV contract with MTNL along with Aksh Optifibre. It also plans a broadband network and reportedly owns a massive 200km optic-fibre network in Mumbai and Delhi. Is it the same network that he was setting up for Reliance Infocomm? At one time, Reliance was busy wiring up the country with optic-fibre and one has often wondered if that investment had been quietly written off.
Deora is also part of a group comprising Argentum Motors, a company floated by BVR Subbu, former president of Hyundai Motors India, and others like SpiceJet promoter Ajay Singh who took over Daewoo Motors for Rs800 crore. The group also attracted substantial hedge fund investment, including a 10% stake in the company based on plans to set up an auto-ancillary hub and is negotiating with top global companies for contract manufacturing. However, the industry itself has been in a slump following the global recession. But Deora has other businesses as well. He has promoted Allianz Infratech, along with Ajay Singh, Ashish Singh and Praveen Singh, which is in the race for a pan-India telecom licence.
Usurious Credit Card Interest Rates
Even as credit card defaults rise dramatically, consumers have been dealt a severe blow. In February, the Supreme Court stayed a decision of the National Consumer Disputes Redressal Commission (NCDRC) that had capped the interest charged by credit card issuers to 30% per annum. Indian and foreign banks (along with the Indian Banks Association) had appealed against NCDRC’s decision and made out a case for charging rates in excess of 50% as being reasonable and based on their cost and default risk. The NCDRC had initially issued its order on the basis of a case filed by a consumer group called Awaz. It had argued that if the Money Lenders Act also capped interest rates, why should credit card issuers be allowed to charge substantially more? Banks offered 27 reasons to justify the rates, including the cost of running call centres to market the cards. They also argued before the NCDRC that the Reserve Bank of India (RBI) alone is allowed to regulate interest rates and has chosen not to do so. This is, indeed, correct. An amendment to Section-21A of the Banking Regulation Act prevents courts from intervening in the fixing of interest rates. RBI alone is allowed to do so. RBI then deregulated interest rates by allowing bank boards to decide on the reasonableness of the rates charged. However, most bank boards merely rubber stamp interest rate decisions without any discussion or application of mind. Most often, these are justified on the basis of what the competition is charging. As many as 20 countries around the world, with fairly liberal economies, also recognise the need to cap credit card interest rates. The list includes Japan, South Africa and the Netherlands. Several senior bankers privately agree that the rates they charge are usurious, but no single bank wants to lose income by charging lower rates. When Dr YV Reddy was RBI governor, RBI had asked a couple of banks to reduce credit card interest rates when they had soared to outrageous highs. But this knuckle-rap is plain hypocrisy, since RBI refused to take a firm stand and support a cap on interest rates even when long-suffering consumers dragged the issue to the apex court.
The subprime crisis has amply demonstrated that even the best banks in the world are only focused on maximising profits and their personal bonuses, instead of judging the consumers’ ability to repay. They drafted devious contracts to trap consumers into high interest contracts. The inevitable defaults ruined several banks as well as refinance institutions. What more is required to awaken the RBI to the need to cap the interest rates charged by credit card issuers?