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
I
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
Subba”
*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
II
Recent responses
1
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
2
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
3
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
4
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
5
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
III
Leisure
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!
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