WEEKEND Lighter: Learning from experience

(January 8-14, 2018)

I-Cover Story

Learning from experience: The art and science of publication

In 2014, I published my first book "Banking, Reforms and Corruption: Development Issues in the 21st Century India"
The publisher was Sampark, Kolkatta. The book is still available at Flipkart. Being a fresher in the publication field, I learned many new things by publishing my first book. Armed with the experience, I am publishing my second book this year. When I am keying in this blog, Sai Kishore in Chennai is designing a cover for my new book. This book will have double the number of pages my first book had.
My first publisher was new to publishing books on finance. And new to modern marketing ideas/techniques. So, after watching the progress of my second book, I may consider a reprint or at least eBook version of my 2014 book.
Keep surfing this Blog for further progress of my second book...
M G Warrier
II Recent responses


Budget 2018-19 will be presented in Parliament after a fortnight from today. Expectations galore, as this is going to be the ‘last’ full-year budget before the next elections. Finance Minister Jaitley may have to be a magician, tight-rope walker and a mathematical wizard, all-in-one while putting together a budget that will honor the commitments, quench the political thirst for populist measures that will attract votes and leave the growth path clear. FM may have no difficulty in making choices among populist measures or cutting and pasting some changes in paragraphs on direct taxes. Problems will crop up when he has to speak about legacy issues like agricultural income tax or taxing the super-rich.
While so much concerned about the recovery of NPAs or common man’s woes arising from Aadhaar-linking requirements, media and analysts opt to remain silent when it comes to the pockets where money is getting accumulated, adding new billionaires and making the rich super-rich. At some stage, FM will have to identify such pockets to make good the shortfalls and deficits that stare at him during the budget exercise. The band-in-aids of drawing from the so-called surpluses of PSUs or dipping into the reserves of the central bank, which can at best be short-term remedies, have been over-used during the last three years.
Money is accumulating outside the government fold, almost with the same speed at which heaps of garbage are growing in cities and suburbs. It is government’s responsibility to canalize such hoardings for productive purposes. Even if the details of money outside government accounts are not dovetailed into the budget, GOI’s guidance expressed through Budget Speech should be clear about the social responsibility of people who ‘grow’ rich, exploiting nation’s resources. Perhaps the responsibility to develop infrastructure for healthcare, transport, education, old age care and so on in geographical areas close to large industrial establishments could be entrusted to the industrialists concerned. This will release substantial budgetary resources for deployment in other priority areas and reduce fiscal deficit to a great extent.
M G Warrier, Mumbai
Unreasonable charges

This refers to your editorial “Paying the price” (Business Line, January 8). Banks which are dependent on the trust reposed by depositors should be extra cautious while doing anything that can affect the sentiments of their clientele including depositors. In regard to levying service charges and penalties of various types including the one for failure to keep minimum balances, this caution is conspicuous by its absence in both public sector and private sector banks.
Ever since the deregulation of lending and deposit rates long ago, the track record of banks has not been much encouraging.
While RBI Governors have sometimes lamented and at times expressed desperation about banks being fast in increasing lending rates and slow in passing on benefits of rate cuts, the present trend of sweeping out small savers’  balances in their accounts to make good losses elsewhere under one pretext or the other is deplorable. Such moves will chase away savers from the banking system. Banks should be aware that social media is working overtime to spread unhealthy rumors about any reform initiative and negative news about unreasonable bank charges will give credibility to such rumors.  Such negative publicity will have a long-term adverse impact on the already sagging trustworthiness of the Banking System.
At this stage, perhaps a clear message from RBI asking banks not to meddle with prudent norms of transparency in charging for services may go a long way in restoring trust.
M G Warrier, Mumbai

III Published article

The Global Analyst, January 2018

Banking in 2018

Recovery and Consolidation Phase*

M G Warrier

Last month, while discussing recapitalization of public sector banks, I mentioned about ‘bleeding wounds’ awaiting healing touch in the Indian Financial Sector. Since the nationalization days, through social control and economic reforms, the Indian Financial Sector did not get the attention it deserved, proportionate to the load the sector was to shoulder while participating in the development initiatives the country took forward as part of economic reforms. The current year (2018) is going to be crucial in the horoscope of Indian Banking. There is no denying the fact that several initiatives towards financial sector reforms, which were stalled by vested interests during the decades that preceded, received new life during the period in RBI’s history which will later be known as “Rajan Era” (2013-16). 

Financial Sector Reforms, an ongoing process

If reports of committees and commissions would have reformed a country, India would have become a ‘developed’ nation at least by the close of the 20th Century. Restricting our discussion to the role of credit in economic development, I have in mind the reports from “All India Rural Credit Survey”(1951) to the “Committee on Banking Sector Reforms (BSR)”(Narasimham Committee-II, 1998) while making this observation. The Committee on BSR had commented about implementation of the recommendations of the Report of the Committee on the Financial System (CFS), (1991) that ‘while the recommendations relating to the arithmeticals, such as rates, ratios and accounting, have been accepted, the equally important recommendations relating to systemic and structural aspects are yet to be adequately addressed.’ In the S Ranganathan Memorial Lecture delivered in November 1998, former RBI governor and author of the two reports on Financial/Banking Sector reforms had concluded as under:
“Financial sector reforms cannot be separated from reform in the real sector. An important outcome of financial sector reform is that it could contribute to greater flexibility in the factor and product markets. Reforms towards liberalization in the real and financial sectors are mutually reinforcing, sustaining and sustained by each other. Financial liberalization and real sector liberalization are not ends in themselves. They have to be regarded itself of as means to attain in a more effective manner the objectives the nation has set for itself of enhancing growth with equity and attaining external viability. A sound macro policy environment and a strong and healthy financial system in a liberalized framework are among the sure guarantees for attaining these objectives.”
After the two Narasimham Committee reports referred to above, a comprehensive review of the legislation prevailing in the country for regulation and supervision of the country’s financial sector was entrusted to the Financial Sector Legislative Reforms Commission (FSLRC). Unfortunately, FSLRC deviated from its entrusted task and tried to reinvent established organizations like Reserve bank of India!
Still, though all its recommendations will themselves need relook and ‘reform’, the report of FSLRC will continue to guide reforms in the Indian Financial Sector. As its report was a monologue written by the chairperson of the Commission, brushing aside divergence of views expressed by most of the other members, the recommendations it contained can form only background notes for considering further action on issues considered by FSLRC. Still, FSLRC prepared the background for far-reaching reforms like the constitution of Monetary Policy Committee in RBI, drafting of the controversial FRDI Bill and so on.

2018: The year of recovery and consolidation

The year 2018 is going to be more challenging for the Indian Financial Sector for a variety of reasons. Most of the initiatives taken by GOI and RBI on the reforms and legislative fronts during the first three years when NDA government has been in charge will start showing results and some of them will need hard policy decisions to see fruition. The areas of concern include stressed assets in the financial system, Human Resources Management issues arising out of the consolidation of banks and rapid progress being made in the adoption of modern technology and skill needs for new institutions that are coming up.
Financial institutions survive on the trust of the clientele, namely savers who keep their money with them and borrowers who depend on them for timely providing of credit. For many reasons, recent times have seen a deterioration in public trust in banks and financial institutions. Note-Ban to ‘Bail-in’ provision in the draft Financial Resolution and Deposit Insurance Bill and rising Stressed Assets in banks to delay in resolving King Fisher issue may have contributed to this. Media, electronic, print and social, need to play a more proactive role in economic development.

RBI’s role

With the Monetary Policy Announcement on December 6 and the media interaction that followed, RBI governor Urjit Patel and his team have given clear signals to the doubting public that this season, RBI has no blurred vision as far as conduct of monetary policy is concerned. Further, the doubts about banking sector reforms including focus on governance issues of public sector banks being aired by economists and analysts have been cleared by the assurance that “we don’t sow the seeds of the next boom and bust cycle of lending”.
On recapitalization, let us take Urjit Patel’s words “Governance reforms in all public sector banks will also feature as a big part of the overall plan” at face value. The observation goes well with the assertion that “The plan will be differentiated across the banks. Recap bonds will be front-loaded for banks that have managed their balance sheet strengths more prudently and can use the injected capital to lend besides providing for legacy asset losses.”
One issue where GOI and RBI need to bring more clarity is about the ‘Bail-in” provision contained in the draft Financial Resolution and Deposit Insurance (FRDI) Bill. Perhaps, beyond the clarification from the finance minister that depositors’ interest will be kept in view, a clear statement that whatever be the legislative changes under consideration, savers’ deposits will continue to be safe with banks may go a long way in closing an unhealthy debate now open in the media. This is considered necessary, as ‘experts’ are confusing the public by mixing words and phrases like ‘taxpayers’ money’, ‘banks’ capital’, ‘NPA’ and ‘deposits with banks’ while commenting on the ‘Bail-in’ provision in the FRDI Bill which is still in draft stage.
*Submitted version of article published in the current issue of TGA. 


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