WEEKEND LIGHTER: RBI, changing with the times

WEEKEND LIGHTER: RBI, changing with the times
(July 23/24, 2016, No. 30/2016)
Weekend Lighter is posted every Saturday @mgwarrier.blogspot.in
Feel free to mail your views on this edition of WL to mgwarrier@gmail.com
Opening Remarks
A response* I treasure
“Many thanks Govinda for your intellectual and moral support. It's always meant a lot to me.

Best regards


*Former Reserve Bank of India Governor Dr D Subbarao’s response to my observations on the highlights from his book published in the media (Refer WL, July 16/17, 2016)

Dr Raghuram Rajan
Online comments posted @Allbankingsolutions three years ago:
“Dr Rajan, as is evident from his academic and professional record, is a fast learner and capable of finding solutions to the toughest of economic and monetary problems. His challenges lie in (a) how fast he will be able to ‘unlearn’ the IMF lessons which were moduled with prosperity of the developed world in view and (b) how quickly he will get convinced about the historic dual responsibility of RBI to ensure distributive justice while supporting economic growth and reframe his arguments to convince North Block that after all RBI has been on the right path and what the central bank lacked was the support from GOI.”
M G Warrier
Recent responses
Emerging ‘Kerala Model’ for banking
This refers to the report “Kerala house moves resolution against SBT merger with SBI” (HBL, July 19). Evidently, the joint move by the ruling LDF and Congress-led UDF to oppose SBT merger with SBI is a politically motivated one aimed at some temporary popularity. Let the protest go ‘on record’ for whatever it is worth.
For decades, commercial banks in Kerala, including SBT, have been very supportive of all developmental efforts initiated by the state government. Despite a strong deposit base partly augmented by remittances by NRK (non-Resident Keralites) population, banks having presence in Kerala have been trying to maintain Credit-Deposit-Ratio at a decent level.
Only recently, Chief Minister Pinarayi Vijayan was advocating merger of State and District level cooperative banks in Kerala to form a Kerala-based commercial bank and claiming that the proposed bank will occupy the space likely to be created by merger of SBT with SBI. Incidentally, SBT’s dominance is only in South Kerala and its merger will make SBI ensure adequate branch network to perform its role more efficiently.
The state government and RBI should persuade smaller and weak private sector banks in Kerala also to merge with bigger banks to improve efficiency and economies of scale. With all major commercial banks including SBI (post-merger) and the Kerala Gramin Bank (Regional Rural Bank) having overlapping areas of operation and the possible emergence of Kerala Cooperative bank as a ‘commercial bank’ as is being envisioned by the present ruling front, there will be need to rationalise branch network and professionalise the working of all banks in Kerala. More than that, focus of business will have to shift from providing credit to professionally managing state’s savings, of course without any dilution in the carrying out of responsibilities in providing adequate need-based credit. This decade may see the emergence of a new ‘Kerala Model’ in banking service.
M G Warrier, Mumbai
Blaming the tool?
Apropos your editorial “Mr Rajan’s concerns” (Business Standard, July 19), let us remember, the inefficiency and sometimes obsoleteness of data on which RBI builds up its case for monetary policy decisions have been haunting the central bank almost for about a decade now. Dr Rajan’s predecessor Dr D Subbarao also has publicly lamented about this. Having said that, in the Indian context, time is not yet ripe to move out of the focus on inflation based on consumer price index. Here is why.
If we ignore the rise in consumer price index, or bluntly put, the rise in prices of food, beverages and fuel the impact will be on the food-intake and basic needs of the majority of the people of India. In a worst scenario, we may end up in a famine-like situation. More affordable is a slower pace in industry-pushed economic growth.
Banking system and the Indian industry have to learn to manage their resources better and start functioning on lesser margins of profit. Once efficiency is infused into the system and pilferages attributable to inefficient management and corrupt practices are minimised, costs of production including interest costs are bound to come down. We should not encourage the soft option of robbing the small savers by paying negative interest rates(net of inflation, the present interest rate on savings deposits, offered by major banks, which form a substantial portion of bank deposits, is negative!) on their savings and making cheap credit to industry.
M G Warrier, Mumbai
Politics and policy
This refers to TT Ram Mohan’s article “Limits to autonomy” (The Hindu, July 18). By and large, the article has come out as a convincing defence for the GOI’s stance on RBI. This is another view. In the light of the concluding disclaimer (the book is yet to be read by those who are talking about it!), let us wait for the month-end, when the book will be available, hopefully. Meanwhile, can we bracket Dr Subbarao with T N Seshan and Vinod Rai who openly and mercilessly  took on political leadership without caring about their own career? Here Subbarao stands out as one who ‘sacrificed’ others and even RBI’s own interests without risking his own self-interests. But that should not reduce the gravity of the relationship issues between RBI and GOI which have almost reached a breaking point.
Even the worst critiques will concede that RBI has been within its mandate to expect some freedom in talking about Monetary Policy. Those having doubt are welcome to read the Preamble of RBI Act, 1934. Of course, nothing prevents the political leadership from amending the Preamble! On inflation, Dr Rajan has already started worrying about that monster bordering the GOI prescription of the upper limit of the band of four plus or minus two! That is proof enough to argue that GOI need to listen to saner advice from RBI before allowing its spokespersons to publicly express expectations of political leadership before every Monetary Policy review. Options are getting limited. Either retain the institution of RBI, or make the central bank another department of GOI. No, heavens are not going to fall, in either case.
M G Warrier, Mumbai
Where to search?
Apropos S C Aggarwal’s response “Offer solutions” (Business Standard, Letters, July 18), one is tempted to point out that it may not be worthwhile to search for ‘solutions’ in memoirs like the one written by Dr D Subbarao. Perhaps, the right place for such a research would be RBI’s website @rbi.org.in where Monetary Policy documents, several reports including RBI Annual Reports and speeches of RBI Governors and his deputies and executive directors can be accessed. These documents will give an idea about the timely analysis of available data affecting the health of financial sector and economic growth and sharing of RBI’s thinking on crucial policy issues with GOI and public.
As regards the criticism about the Ex-Governor’s stance on RBI autonomy, the general perception as divulged by spokespersons of GOI so far is that RBI has been within its mandate to expect some freedom in talking about Monetary Policy. Those having doubt are welcome to read the Preamble of RBI Act, 1934. Of course, nothing prevents the political leadership from amending the Preamble! That Dr Rajan has already started worrying about the inflation monster bordering the GOI prescription of the upper limit of the band of four plus or minus two, is evidence enough to prove that RBI’s perceptions on inflation has been conservative.
M G Warrier, Mumbai  
 RBI, changing with times
A K Bhattacharya’s article “Changed world of RBI governors” (Business Standard, New Delhi Diary, July 20) is a brief but balanced and comprehensive review of the recent happenings which have a long term impact on the functioning of Reserve Bank of India (RBI). For sure, the central bank does not get much affected by barbs by the likes of Dr Subramanian Swamy. But a concerted move by the political leadership in New Delhi and the mandarins in the North Block to assert ownership rights and to show the institution of RBI in poor light has considerably brought down the image of India’s central bank, though the presence of Dr Raghuram Rajan at Mint Road during the last three years has contained the damage to some extent.
The overt attempt to undermine RBI autonomy started with the appointment of the Financial Sector Legislative Reforms Commission(FSLRC) by GOI and getting a report from an obedient Commission on dotted lines. Instead of bothering much about reforms in financial sector, FSLRC concentrated on clipping RBI’s wings. It even recommended stripping of Governor’s designation. It has to be said to the credit of Dr Rajan and his predecessor who staked their own career to defend the causes dear to protect national interests by cogently arguing and getting some of the irrational recommendations of FSLRC dropped or modified in public interest.
The Reserve bank of India Act, 1934 was the result of a couple of decades’ deliberations and the institution has stood the test of time for eight decades now. Unless a political decision converts RBI into a department of GOI, India’s central bank has the resilience to rise to the occasion in trying times and if GOI is able to ensure the kind of leadership the institution was fortunate to get so far in coming years also, this institution will continue to play a prominent role in India’s economic growth.
M G Warrier, Mumbai

An Atheist was walking through the woods.

'What majestic plants! What powerful rivers! What beautiful wild life!' he said to himself.

Suddenly, he heard a rustling in the bushes behind him. He turned to look .... and saw a 7-foot grizzly bear charging towards him.

He ran as fast as he could along the path.
but bear was closing in on him!
He looked over his shoulder again, and the bear was even closer and then
..... he tripped and fell.

Rolling over to pick himself up, he found the bear was right on top of him, ready  to strike!

At that instant, the Atheist cried out, 
'Oh my God!'
Time stopped - the bear froze - the forest was silent. A bright light appeared.

A voice came out of the sky:
"You deny my existence for all these years; you teach others I don't exist and even credit creation to cosmic accident. But yet you call on me to help you out of this predicament?"
"Am I to now count you as a believer?"

The Atheist looked directly into the direction of the voice and said: 
"It would be hypocritical of me to suddenly ask you to treat me as a Christian ; perhaps you could make the BEAR a Christian?"

"Very well!" said the voice.

The light went out. The sounds of the forest resumed. The bear dropped his right arm, brought both paws together, bowed his head & said:

"Lord, bless this food, which I am about to receive from your bounty. Amen."*

Forwarded by
Jayakumar M724 (Exrbites Group)
*My comment: God went for a safer option. He would have remembered Bhasmasura, when he thought of calling back the bear!


Popular posts from this blog


The King of Ragas: Sankarabharanam