WEEKEND LIGHTER: RBI ANNUAL REPORT 2016-17

WEEKEND LIGHTER: RBI Annual Report 2016-17
 (September 2/3, 2017)
Feel free to mail your views on this edition of WL to mgwarrier@gmail.com

Flash editorial: Height of financial illiteracy!
This is Blog Post No: 3105 @www.warriersblog.com



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Flash editorial: Height of financial illeteracy


As one who has been proud of being a reader of The Hindu for the last 54 years, today I feel ashamed of the kind of journalism The Hindu is promoting.
This report has been published in the Business Page of the paper today. Clearly, the person/s who has/have put together the story is/are not aware that RBI's accounts for 2016-17 have been finalized.
GOI can always borrow more money from RBI via different windows, but that would not be against previous year's 'surplus income' of RBI. 
M G Warrier
Cover Story
RBI Annual Report 2016-17
RBI Annual Report 2016-17 is most likely to be sunk in the Demonetization debris.
Going by the format and content, in recent years, RBI Annual Report has evolved into a comprehensive document which reviews the central bank's performance during the year making a realistic assessment in the context of known role and responsibilities, gives details of department-wise assignments on hand and future plans, making it a unique one among annual reports brought out by other organizations in public and private sectors in India.
Viewed in this context, Team RBI deserves to be congratulated for bringing out a comprehensive, informative Annual Report maintaining the tradition of RBI.

It is unfortunate that media and analysts prefer to dump such documents in the preparation of which so much of efforts including research work have gone into, in sensational debates on just one issue, namely, demonetization.
It's unfortunate that people concerned do not open and read the report, but participate liberally in criticizing RBI Governor and the central bank's policies, part of which emanate from political jealousy or may be, motivated by stakeholders who have suffered losses in the joint effort by GOI and RBI to unearth black money or handle willful defaulters who have diverted bank credit.
A word about ‘demonetization’. The November 8, 2016 announcement of withdrawal of ‘legal tender status’ of Special bank Notes (Rupees one thousand and Rupees five hundred currency notes issued by RBI) did not affect the ‘promise to pay’ with a sovereign guarantee signed by RBI Governor printed on such notes. If someone responsible has made any irresponsible statement about expecting a ‘windfall gain’ on account of a sizeable portion of these notes not coming back to the banking system, it is unethical to blame Prime Minister or RBI for that. If 99 percent of such notes have been accounted for and ‘central bank’s liability’ has been met, we should appreciate the efficiency of the Indian Banking System. 
M G Warrier, Mumbai
Access RBI Annual Report 2016-17 @
http://www.thehindubusinessline.com/resources/rbi-annual-report-for-201617-full-text/article9837153.ece

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SOME USEFUL LINKS

RBI’s Capital and Reserves: 2015 article by
M G Warrier


We miss SS Tarapore. This link will take you to his last article on RBI's Accounts. Since 2015, RBI's Capital and Reserves as percentage to total assets have come further down. As on June 30, 2017, RBI's reserves were at a low of 7.6 percent of total assets. This is against a self-set target of 12 percent which was almost achieved by 2009.
If interested, please read this article and my online comments.
M G Warrier

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RECENT RESPONSES
  
http://www.thehindu.com/opinion/op-ed/diary-of-an-unusual-year/article19576668.ece
Demonetization and RBI
Puja Mehra’s brief article with focus on RBI governor Urjit Patel (The Hindu, “Diary of an unusual year”, August 29) gives us an opportunity to discuss once again the mysteries surrounding demonetization announced by Prime Minister Modi on November 8, 2016. That can wait release of RBI Annual Report 2016-17.
 As the measures taken by GOI and RBI post-demonetization have been widely debated in the media, for now, let us restrict this discussion to certain misunderstandings that may still remain after one goes through the article.
Economic Survey 2016-17 carried some misleading observations like the following:
“Last year’s  Economic Survey had raised the issue of the government’s  excess  capital  in the RBI. That issue could  become even more salient this year because of demonetization…If  there is a demonetisation windfall - not included here - the RBI will stand out even more as an outlier in terms of government capital in the central bank…The estimate for India assumes, conservatively, no windfall from demonetisation. There is no particular  reason  why this extra capital should  be kept with the RBI. Even at current  levels, the RBI is  already  exceptionally  highly capitalized.”
Such vague and lose observations in traditionally reliable documents and analysts and media not taking cognizance of official positions taken by RBI on demonetization (RBI had brought out a paper analyzing ‘impact of demonetization’ which was placed in public domain) have done irreparable damage to the reputation of Indian Financial System. It is convenient and easy to isolate RBI or its Governor and quickly ‘fix’ responsibility, as Urjit Patel is not Raghuram Rajan who almost kept giving online responses when allegations were made against him or his policies.
M G Warrier, Mumbai


HAL takes off

This refers to Ajay Shukla’s report “HAL’s production of light combat helicopter takes off” (Business Standard, August 27). Recently, Hindustan Aeronautics Limited (HAL) had signed a memorandum of understanding (MoU) for 2017-18 with the Ministry of Defence. The annual MoU outlined targets on various performance parameters of HAL during 2017-18, inter  alia targeting a revenue from operations at Rs 17,900 crore, the highest ever annual revenue target for HAL.
The HAL initiatives now reported align well with PM’s focus on ‘Make in India’ and increasing indigenization of defence production gradually. In defence production and several other areas which will not give quick commercial profits, in India, public sector will have to play a major role for several more years. This was well understood during Nehru’s days, but the BPL (Businessmen-Politicians-Lawyers) combine which started dominating all political parties without exception for obvious reasons took on themselves the responsibility of selective killing of public sector organisations, one by one. The present move to revive public sector need to be seen in this background.
M G Warrier, Mumbai

 Beacons of hope

With reference to R C Mody’s letter*, “Guidelines of wise men” (August 29), it is comforting to see that there are several veteran former bankers, who lived in an era during which corruption was not an essential ingredient of politics and business; institutions such as the Reserve Bank of India, the Supreme Court, Election Commission and the government existed separately and with people at the helm, who were aware of the contours of their responsibilities, even if some of them could not get things done in the manner they would have wanted to. Mody is one among them and reading his letter, I feel proud about his willingness to share his memories.

In the liberalised world of today, everything has a market-based, indexed price. Still, people like Mody keep the beacon of hope alive.

M G Warrier, Mumbai

*Copied below is R C Mody’s letter:
With reference to “Monumental failures of RBI”** (August 23), Gajendra Haldea has said that it was the Reserve Bank of India’s (RBI) job to lay down effective (lending) norms and guidelines to banks.The  RBI had laid down comprehensive norms and guidelines to banks in 1975. These were evolved not internally by the RBI bureaucracy and dictated by it to banks. They were based on recommendations of a study group (later known as Tandon Committee) appointed by RBI under Prakash Tandon, the much celebrated then chairman of Punjab National Bank and comprising 14 other eminent men.

These wise men, after year-long deliberations, prescribed industry-wise norms for inventories and receivables and laid down guide lines for bank lending. The basic principle on which the guidelines were based was that the function of a bank was only to supplement its own resources (including long-term funds raised elsewhere) of a borrower in running an enterprise. The bank’s lendings were not to exceed the Maximum Permissible Bank Finance for each borrower, based on a formula laid down by the study group.

The RBI accepted major recommendations of the study group and required banks to restrict their lendings accordingly. It required its supervisory machinery to oversee their implementation. As a result, the quality of loan portfolios of banks showed perceptible improvements and what we call non-performing assets today (a term not in vogue then) did not contaminate them to any visible extent. Then came the era of liberalisation in the wake of the economic reforms of 1991, which dispensed with the undue restrictions and controls associated with the license-permit raj. The RBI’s norms for bank lending, which were evolved with the consent of and in co-ordination with those affected (viz. banks and their borrowers) did not fall in the ambit of the said reforms, although their revision from time to time, in the light of changing scenario, was always called for. But at some stage, the norms and guidelines were dropped lock, stock and barrel and a free-for-all was created; banks could lend as they liked. And the result is there for all to see. The wholesale abandonment of aforesaid discipline in the name of liberalisation tantamounts to throwing the baby out with the bathwater.

R C Mody, New Delhi
 **Can be accessed @www.warriersblog.com also
  
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LEISURE

Radha Krishna By Keshav (August 31, 2017)


A WhatsApp story teller with a difference!

Enjoy the rains
Start reading from anywhere... this article will make sense...If it doesn't, open this mail again some other time...
M G Warrier


Chinese version of Valentines Day:  August 28, 2017


The Hindu Open Page articles.August 27, 2017

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