Weekend Lighter: How to save Indian banks

WEEKEND LIGHTER*: How to Save Indian Banks
 (April 22/23, 2017, No.16/2017)
Feel free to mail your views on this edition of WL to mgwarrier@gmail.com
*Weekend Lighter is posted every Saturday at www.warriersblog.com
Section III: Society
Warrier’s Blog updates:
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M G Warrier

Cover Story
How to save Indian banks*
This refers to your editorial “Rebooting PSBs” (Business Line, April 21) which could form the basis for further discussion on financial sector reforms. Unfortunately the Financial Sector Legislative Reforms Commission (FSLRC) for reasons of motivated mandate and functional constraints due to wrong guidance from finance ministry, instead of dealing with ‘financial sector reforms’, went on a tangent and produced a report aimed at breaking the regulatory apparatus in the financial sector and disturbing the public debt management arrangement which was in working condition.
The damage was minimized by the presence of Dr Raghuram Rajan during 2013-16.
The institutional structure, management and the entire working of the four subsectors in the Indian Financial System, namely Public Sector Banks, Private Sector Banks, Non-Banking Financial Companies and Cooperatives are overdue for a revamp and overhaul. After the nationalization of banks, we have been trying measures in isolation whenever problems surfaced. Reasons for such a sporadic approach varied from political to ‘fear’ of consequences.
Governance issues like inadequacies in credit appraisal and risk management, dual regulation, political and bureaucratic (read finance ministry) interference and adequacy of compensation to recruit and retain talent and professionalization of boards with sufficiently long tenure of membership flagged in the editorial need immediate attention at the highest level. Quickly attending to these issues may save the Indian Financial System from a breakdown which appears imminent, otherwise.
M G Warrier, Mumbai
*Submitted version of letter published in The Hindu Business Line, April 22, 2017
Recent responses
MPC proceedings
This refers to Abhijit Lele’s story “Patra  pushed for rate hike at RBI meet” (Business Standard, April 21). While the text of the report is a balanced one the caption read with the note “But minutes of the meeting show executive director voting for status quo” gives an impression that Michael Patra has done something unusual or ‘acted under duress’, which is not the case.
Patra concludes his statement asunder:
“To sum up, I believe that a pre-emptive 25 basis points increase in the policy rate now will point us better at the target of 4 per cent to which the Committee has committed explicitly. It will also obviate the need for back-loaded policy action later when inflation is unacceptably high and entrenched. On balance, however, I vote for holding the policy rate unchanged in this bi-monthly meeting and await a few more readings of incoming data so that remaining transitory factors have passed and a clearer assessment of domestic and global macroeconomic conditions emerges.”
Since the present Monetary Policy Committee became functional, it meets for two days and RBI Governor announces the Bimonthly Monetary policy based on the recommendation of the MPC on the second day. The deliberations of MPC are transparent to the extent that views expressed by each member including Governor are made public.
I think, voting by a member and the views expressed by him at the meeting should be seen separately, as voting could be influenced by the strength of argument put forth by other members also. MPC should be given some more time to evolve its own procedures and practices without affecting the free and fair expression of views by each member during the meetings.
M G Warrier, Mumbai
Public sector autonomy
Apropos “Shine Jacob’s story “Railways get serious about making money” (Business Standard, April 19), first a word of gratitude to Business Standard for publishing in great detail a public sector initiative to manage own resources to optimum advantage. If Indian Railways succeed in generating non-tariff revenue at the scales projected, Railways will become a role model in making productive deployment of ‘hidden’ resources.
One can expect that the pessimism of the ‘Industry Expert’ quoted at the end of the story, which reads “It is not just about rolling out a brilliant policy – its implementation in a proper manner should also be ensured” will be blown out of proportion in the coming days with added spices about possibilities of ‘corruption’ in implementation. But, that is a virus which has to be destroyed by transparency in execution of policies.
Beyond their ownership and commitment to the roles assigned to them by statutes, public sector organizations have to be out of the clutches of control by government and political leadership. They should have functional autonomy in managing their affairs within the mandated contours and should enjoy a level playing field with their similarly placed organizations  in private sector. Reversely, private sector organizations which handle public resources (e g. deposits mobilized by banks) should have the same responsibility to society as is expected from their public sector counterparts.
Simultaneously with improving revenue from tariff and non-tariff sources, Indian Railways need to ensure that the services across sectors (Rajdhani to suburban local ) meet the minimum expectations of passengers.
M G Warrier, Mumbai

 Online comments posted at moneylife.in

M G Warrier

Gradually, both Government owned and private sector should come under uniform regulatory requirements and have a level playing field for conducting banking business. After all, both raise resources from the same source namely deposits from the public. Post nationalisation, somehow an impression was created that private sector banks are "commercial" banks and only the "nationalised" banks were responsible for ensuring flow of credit for priority sectors and reaching out to rural and semi-urban areas with banking services. Several concessions like depositing shortfall in targeted lending in Rural Infrastructure Development Fund maintained by Nabard strengthened this impression. The differentiation affected public sector banks adversely in all areas including HR management.

Redefining citizenship: Chintan Chandrachud
“First, the court has increasingly used the regrettable, caste-based taxonomy of ‘purity’ and ‘pollution’ in its decisions. For example, in 2013, it endorsed the decision of the Patna High Court observing that candidates with criminal records pollute the electoral process, affect the sanctity of elections and taint democracy. The court’s language is symptomatic of its conception of its own role — as a sentinel of democracy seeking to ‘disinfect’ the electoral process. This is more than a poor choice of words. The court has the power to frame debate and influence the language of argument in ways that perhaps no other institution does.
Second, the court’s recent decisions have meant that whether the right to vote is a constitutional right or merely a statutory privilege is still a matter of contestation. Article 326 of the Constitution provides for universal adult suffrage, but does not specifically mention the right to vote. Rights that are not explicitly set out in the Constitution, such as the right to privacy, have routinely been impliedly read into the text. But the court has refused to categorically recognise the right to vote as an inalienable constitutional right, frequently holding that it is a privilege that can be taken away as easily as it is granted.
It is disconcerting that the court still does not clearly acknowledge a constitutional right to vote. Participation in the electoral process is often seen as a gateway right, or a ‘right of rights’. Our only response to citizens whose candidate of choice has not been elected is to point towards their right to exercise that choice in the first place. The absence of a constitutional right to vote has real consequences, for it makes it easier to impose wide restrictions on who can exercise that right, and the circumstances in which they may do so.
Closely tied to this refusal to clearly recognise a constitutional right to vote is the court’s endorsement of the embargo on the voting rights of prisoners. Blanket prohibitions on voting are the surest way of alienating a political community. The embargo is particularly draconian, for all prisoners, regardless of the seriousness of their offences or the length of their sentences, are denied the vote. Moreover, prisoners awaiting trial are also denied this ‘privilege’.

It is one thing for the court to introduce transparency-promoting measures with a view to allowing change to take place organically, but quite another to change the rules of the game to match its conception of the ideal electoral system. The right to vote and the right to contest elections are fundamental markers of citizenship in a constitutional democracy. Incrementally yet decisively, the court is changing what it means to be a citizen of this country. It may soon take another step in that perilous direction.”


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