Minutes of Meeting on response of Meeting held on (22-4-17)

Mudra Sahyata Corp./2016-24/522

DBR RRB.BC.NO.12/08.03.002/2016-17

To,
Chief Secretary, Ministry of Finance
Governor, Reserve Bank of India

Limiting the Scope of supervision of the Reserve Bank of India

over Banking Companies

Dear Sir/Madam

R.B.I vide its circular R.B.I/2016-17/23 issued few guidelines after taken into consideration of
current market situation to deduct of repo rate and reverse repo rate.

Mudra Sahyata Corp. endroses all the guidelines issued by R.B.I for the reason
mentioned hereinafter

As we are cooperative bank registered under cooperative society Act 1964 primary credit
society. The main function of this bank is to provide financial assistance to all the farmers, so
that that they can flourish their business. As cooperative banks are owned by their customers
and follow the cooperative principle of one person, one vote. Unlike credit unions, however,
cooperative banks are often regulated under both banking and cooperative legislation. They
provide services such as savings and loans to non-members as well as to members, and some
participate in the wholesale markets for bonds, money and even equities. It basically runs on
the principle of co-operation, mutual help (member helping each other) without having any self
interest

As the money lending and borrowing is concern most of the funding were done by Reserve
Bank of India NABARD, central government and state government and recent decision which
was taken by RBI with a view to limiting its scope over banking company. RBI limited their
scope by doing a deduction in repo rate and reverse repo rate from 6.75 to 6.25 and 5.75 to 5.50
respectively. This would help our bank to fulfil its basic objective as the name of the
cooperative bank is, to make financial assistance to member of the cooperative bank.

When the repo rate is raised, banks are compelled to pay higher interest to the RBI which in
turn prompts them to raise the interest rates on loans they offer to customers. The customers
then are dissuaded in taking credit from banks, leading to a shortage of money in the economy
and less liquidity. So, while on the one hand, inflation is under controlled as there is less money
to spend, growth suffers as companies avoid taking loans at high rates, leading to a shortfall in
production and expansion. Whereas if RBI increases this Reverse Repo rate, it means RBI
wants to contraction of credit. When RBI gets loan from banks at high rate of interest, more
and more banks will supply to central bank because it is safe and earning is more. Effect of this
will on financial market. Supply of money in financial market will decrease. Due to decrease
in the supply of credit in the market, inflation rate will decrease.

Decucting in repo rate by .50 would ease up of doing the business because in a repo rate the
bank can easily get the money at lower interest rate by selling of approved securities to RBI
with an understanding at a certain date in future the bank will buy the securities at certain cost.
When the bank has ample amount to lend money to its customer in lieu of adequate
consideration. Whereas when the reverse repo rate is decrease the Cooperative Bank would not
be highly effected by it because under this RBI took the money from commercial bank and
with the credentials of RBI the commercial bank deposited its more money to central bank and
its end up with shortage of money in the market.

Hence because of aforementioned reason Cooperative bank support the guidelines issued by
R.B.I.

As a suggestion given by cooperative bank to RBI apart from decreasing the repo rate and
reverse which might led to bringing the inflation into the country which is not all favourable
for developing countries, the cooperative bank suggested to bring FDI in the cooperative bank
So that the flow of money will not be interrupted and bank can have lots of money to lend it to
their members. The introduction of FDI in to cooperative bank not only bring money to the
bank but the investment would increase in the country and helps to the development of
cooperative bank as well as their members.

At present situation the banking industry in India is sufficiently capitalized and regulated. The
economic and financial conditions here are better than in any other country. Liquidity, credit,
and market studies have proven Indian banks to be resilient. They have negotiated the downturn
in the global economy well.

The Reserve Bank of India (RBI) is the topmost body monitoring the Banking Industry. Any
shortcomings or discrepancies are dealt with by the RBI.

The banking industry in India is divided into scheduled and non-scheduled banks. 67,000
scheduled bank branches are located in India. They consist of cooperative banks and
commercial banks. The PSBs (Public Sector Banks) form the base of this sector in India. They
account for 78% of the assets in the banking sector. The Private Sector banking is making
headway. They are leading in mobile banking, phone banking, ATMs, and Internet Banking
sectors.
Sectors of the banking industry include investment banking, retail, and private banking.
Investment banking is a growing sector with more Indians looking to invest funds in mutual
funds and stocks rather than the traditional fixed deposits and schemes.

Retail banking is when the bank deals with individual customers rather than corporations.
Services offered by these banks are normal savings, personal loans, checking accounts, and
debit/credit cards amongst others. This is also a growing sector as the drive for cashless
transactions is growing. More people are opting for debit and credit cards. Private banking is
where the personalized financial services are provided to individuals or corporations of high
worth.

All these sectors are showing immense growth prospects. Internet banking is also gaining
prominence. The phone banking sector is also gaining in popularity. Thus, the entire banking
sector is growing and offers immense potential.
This is why foreign banks are increasingly establishing their base in India. JP Morgan, Standard
Chartered, Bank of America, and many other international banks have established centers in
India to tap its potential.

FDI in this sector has been raised. 74% FDI via the automatic route is allowed in the private
sector banks. This means that the aggregate foreign investment in any private bank considering
all sources should be up to 74% of the paid-up capital. In the case of nationalized banks, the
Portfolio and FDI investments maximum limit is 20%. This cap also applies to the investment
in state banks and other associated ones.

Even with the global recession, the investment in the banking industry is still prevalent though
the volume may have been reduced. The FDI entries in the country grew by 145% between
2006 and 2007 and by 46.6% during 20072008. The FDI in 2009 was down to 18.6%.
However, with the recession abating the investments are sure to rise.

The government is also encouraging foreign investment in this sector, as the entry of foreign
players will help the sector. FDI in Indian banking can lead to improved efficiency, better
capitalization, and improved adaptability. So the government is attracting FDI in this field.
Overall decreasing the repo rate and reverse repo rate liberalize the banking in the economic
way so that the bank have more money and they have economic freedom to lend more people
in to the market and the same is with introduction of FDI. By introducing the FDI into
cooperative bank and increasing the overall cap of fdi into banking sector it liberalize the bank
in the economic manner to have more money to bank they can easily lend money to their
member and customer.

Shivam Kumar

Chairman, Mudra Sahyata Corp.