Warrier's Blog, June 1-15, 2018 : Right Questions
Warrier’s Blog, June 1-15, 2018 : Right Questions
This refers to the report “RBI needs more powers to oversee PSBs” (Business Standard/Business Line, June 13). Media reports would give an impression that the constraints in disciplining Public Sector Banks (PSBs) are the invention by the present RBI governor Urjit Patel sometime in August 2017 prior to his August 14, 2017 Ahmedabad speech. Those who are new to the subject may access the report of the “Committee on the Financial System” (CFS : First Narasimham Committee, 1991) which has made several recommendations about management of PSBs including handling of stressed assets.
Since late 1990’s finance ministry perfected the art of silencing RBI and went ahead with its agenda to use PSBs as a tool for resources mobilization and deployment claiming ownership rights on PSBs and even RBI. When things became unmanageably bad, everyone is trying to find a scapegoat in RBI.
This is not to belittle the good work being done by the Parliamentary Committee by asking right questions and getting very relevant answers on challenges before the Indian Financial System, baked in the institutional wisdom of RBI. One’s regret is the limbs of governance, in this case the finance ministry, RBI and the political leadership are not working harmoniously to meet a chaotic situation for which they are jointly responsible.
Ongoing coordination in perception of problems and finding solutions among the three is the only remedy for avoiding repetition of the present chaos. Something similar to the need for the gears, accelerator and break to work coherently for an automobile to work efficiently.
M G Warrier, Thiruvananthapuram
June 11, 2018
This refers to the report “Centre takes the first step on lateral hiring, officers upset” (Business Standard, June 11). The move is a positive one and it is unfortunate that there is going to be efforts from some quarters, to scuttle it. This initiative should be seen in its right perspective without attributing extraneous motives. Public Sector-Private Sector-Partnership and smooth inter-sectoral mobility of resources including talent are essential for taking the country's development agenda forward.
The selection of just ten disciplines and proposal to recruit just one each at JS level initially talks volumes about the cautious approach of GOI while handling a sensitive subject.
Though initial recruitment is on contract basis (3 to 5 years), as GOI is looking at an age profile of 40 to 45 (15 years experience in the relevant area), those who take up the challenge seriously and are willing to contribute further should not be denied opportunity by abrupt termination of contracts at their prime age.
The whole process needs to be seen as a natural phenomenon of the present level of economic development and best practices elsewhere in the world. The attrition rate of talent from civil services and statutory bodies in India post-liberalization should be researched and appropriate avenues for cross-migration of talent should be created by appropriate changes in HR policies.
M G Warrier, Thiruvananthapuram
June 9, 2018
‘Bad Bank’, Bad Idea!
This refers to the report “‘Bad bank’ plan returns” (Business Standard, June 9). Bureaucracy has its own ways of getting things done in its way and this is the latest example. The idea of ‘Bad bank’ was mooted first in Economic Survey 2016-17, then called ‘Public Assets Rehabilitation Agency’ (PARA). All the reasons for not going ahead with institutionalizing bad assets remain valid today except that the idea now gets support from badly managed banks facing the threat of merger which expect to get another lease of life by transferring a portion of stressed assets to the new entity.
In India, fortunately, big public sector banks which have the major portion of NPAs are big enough to professionally manage their affairs, if functional parity in management and conduct of business is allowed with their counterparts in the private sector. The proposed institutional arrangement for handling stressed assets of the banking system has built-in features that will be harmful for the financial sector in the long run.
Besides acting as a disincentive for professionalizing credit appraisal, credit delivery/monitoring and recovery systems, which process is on track now, creating a separate ‘pocket’ for decaying assets can further weaken the supervisory and regulatory bodies in the financial sector for obvious reasons. Shifting the responsibility for recovery from the lender goes against the principles of best banking practices.
M G Warrier, Thiruvananthapuram
Monetary Policy Statement, June 6, 2018
This refers to the report “Rate hike cycle is back” and your editorial “All options open” (Business Line, June 7). The second bi-monthly monetary policy statement issued by the Monetary Policy Committee (MPC) after a three-day sitting, as expected, attracted media attention for the hike in base rate.
On the other hand, the ‘Statement on Developmental and Regulatory Policies’ which claims to set out various developmental and regulatory policy measures for strengthening regulation and supervision; broadening and deepening financial markets; improving currency and debt management; fostering innovation in payment and settlement system; and, facilitating data management released independent of the monetary policy statement didn’t get adequate media space.
One feels that important policy initiatives like expansion of the payment system, opportunity for urban banks to become small finance banks, relief provided for certain categories of MSMEs and to banks in regard to avail certain reliefs while managing bond portfolio did not get the attention they deserved from the media with the exception of a couple of financial newspapers like Business Standard.
Traditionally, Reserve Bank of India’s (RBI) monetary policy documents have the look of research documents and beyond base rate changes and their impact on prices including bank interest rates, discussions in the media do not go much further. This time around, the welcome change is, RBI chose to explain what MPC meant by saying ‘the hike in base rate was consistent with neutral stance’.
Though the RBI may hold on to the position that its priority will continue to be retaining inflation within the accepted band, the need for harmonizing monetary policy and fiscal policies will continue to be a challenge for the government and the RBI. Here, while several initiatives to professionalize the functioning are evident in the RBI, the Ministry of Finance continues to be guided by tradition.
M G Warrier Thiruvananthapuram