Strengthening the Rupee through India’s Real Economic Strength.

Why not have a different approach to strengthen the rupee?

The continued depreciation of the Indian Rupee raises an important and fundamental question. Can the currency of a nation possessing one of the world’s largest economies, massive gold holdings, huge foreign exchange reserves, vast natural and human resources, and one of the largest domestic markets continue to weaken indefinitely without serious concern and corrective policy action?

India is not a resource-poor country. Nor is it a weak economy lacking productive capacity or internal demand. The country possesses enormous economic resilience backed by:

• Estimated privately held gold reserves of nearly 35,000 tonnes,

• Large official foreign exchange reserves at around $690 billion

• A vast and expanding domestic market,

• Unlimited scope for expanding Tourism, Health sector, Higher Education and related infrastructure.

• Strong agricultural, industrial and service sectors,

• One of the world’s largest and youngest workforces,

• Significant overseas Indian savings and investments,

• Growing technological and entrepreneurial capabilities.

• Large presence of NRIs around the world and OCIs waiting for avenues and opportunities to be part and parcel of the Economy's fast growth dreaming its march towards the most advanced economy by 2047.

In such circumstances, persistent weakening of the rupee should not be viewed merely as a routine market phenomenon but as an issue requiring deeper policy intention and attention along with strategic economic management.

Gold Cannot Remain Economically Idle

India continues to import large quantities of gold by spending valuable foreign exchange, while simultaneously holding massive quantities of privately owned gold lying economically idle.

If gold cannot support the nation during periods of exchange-rate pressure, imported inflation and external uncertainty, the entire approach towards gold management requires serious rethinking.

The time has perhaps come to revisit the concept of a National Gold Policy with the objective of converting part of the country’s dormant gold wealth into productive financial strength.

A properly structured Gold Bank or strengthened Gold Monetisation framework can:

• Increase confidence in the rupee,

• Supplement foreign exchange stability mechanisms,

• Reduce pressure on external borrowing,

• Moderate imported inflation,

• Improve financial resilience during global instability.

• Incentivise earnings, inward remittances,and their retentions, and generation of wealth with built in awards and rewards.

Gold-backed financial instruments and sovereign guarantees can transform idle household assets into productive national strength without undermining public ownership.

Exchange Rate Stability is an Economic Necessity

A continuously depreciating currency affects every sector of the economy. It raises import costs, fuels inflation, increases business uncertainty and weakens purchasing power. While moderate exchange-rate flexibility may be necessary in a market economy, excessive and prolonged depreciation of the rupee can adversely affect economic confidence and long-term stability.

India therefore requires a more determined and strategic exchange-rate management approach based on:

• Strong reserve management,

• Better control over speculative flows,

• Productive deployment of national resources,

• Reduction in avoidable imports,

• Encouragement of stable long-term capital inflows,

• Forex Stabilisation Fund backed by Gold and dynamic need based policy approach .

The objective should not be artificial appreciation of the rupee, but prevention of disorderly and avoidable weakening inconsistent with the country’s economic fundamentals.

Mobilising NRI Foreign Exchange Resources

India’s overseas citizens represent an enormous source of economic strength and foreign exchange stability.

Many NRIs and OCI holders possess substantial foreign currency savings abroad. Special incentivised investment channels with exchange-rate protection, sovereign backing and attractive long-term returns can encourage larger inflows into productive sectors of the economy.

Such schemes can support:

• Infrastructure financing,

• Manufacturing growth,

• Technology development,

• Long-term capital formation,

• Strengthening of foreign exchange reserves,

• Vast expansion of agriculture, augmenting cash crops, vegetables and fruits, and related export related industries.

Confidence, transparency and policy stability are essential for attracting these resources.

Curbing Speculative and Illicit Forex Outflows

Persistent leakages through hawala transactions, round-tripping of funds even perhaps under Liberalised remittance scheme, under-invoicing and over-invoicing of trade, and misuse of remittance channels weaken the integrity of the financial system and place unnecessary pressure on the rupee. Proper recognition of Economic Patriotism and acute Business Acumen with Ethics can work wonders in bringing about the desired change in Foreign Exchange area.

Strong enforcement supported by technology, artificial intelligence, data analytics and coordinated regulatory oversight is essential to minimise such distortions.

Economic patriotism and financial discipline are as important as monetary policy in preserving currency stability.

Need for a Stronger Exchange Rate Stabilisation Mechanism

India may also revisit and strengthen the concept of an Exchange Rate Stabilisation Fund backed by sound reserve management and supported, where appropriate, by gold-linked instruments and long-term sovereign financial planning.

The rupee must reflect not merely short-term speculative market behaviour but the real strength, resilience and long-term potential of the Indian economy.

Conclusion

 A  nation possessing enormous gold reserves, substantial foreign exchange holdings, a vast domestic market, strong demographic advantage and growing economic capability should not reconcile itself to continuous weakening of its currency as an unavoidable reality. India possesses the resources, resilience and institutional capacity to build a stronger, more stable and globally respected Rupee through prudent economic management, disciplined governance, productive utilisation of national wealth and long-term strategic thinking.

With the liberal, diligent and intelligent use of Artificial Intelligence and advanced technology-driven systems in financial regulation, trade monitoring, exchange management, capital flow supervision and detection of irregular transactions, the country can significantly enhance its foreign exchange earning potential while simultaneously conserving and consolidating valuable foreign exchange resources. If supported by prudent and productive deployment of the nation’s gold reserves through carefully designed financial mechanisms, the present trend of Rupee depreciation can be substantially contained and stabilised in a manner beneficial to all stakeholders in the economy including industry, trade, investors, exporters, consumers and the common citizen.

The challenge before the nation is not the absence of strength, but the timely, wise and visionary mobilisation and utilisation of that strength in the larger national interest.

Loka Samastha Sukhino Bhavanthu.

TVG Krishnan

(personal Views )

  

 

   

Progress without Peace -The unfinished Journey of Humanity !

                            A civilisation at Cross Road- Between Dharma and Materialism 

                      "The very spring and root of honesty and virtue lie in good education. "

                                                                                       Plutarch Greek Philosopher. 

Where are we heading in this restless march towards material prosperity?

Where is Sanatana Dharma, where is Divinity, where is Humanity in this growing culture of money, power, greed and endless consumption?

Having lived nearly eight decades and witnessed the transformation of this country through years of struggle, sacrifice, simplicity, discipline and gradual progress, one cannot help but introspect with deep concern about the direction in which society is moving. The change is not merely economic or technological; it is civilisational, cultural and moral.

Science and technology were expected to enhance the quality of life, strengthen human relationships, reduce suffering and create a more peaceful and dignified society. Instead, despite unprecedented comforts and conveniences, the human mind appears more disturbed, impatient, insecure and dissatisfied than ever before. We have created abundance, yet peace is becoming scarce. We have built systems of communication, yet hearts are drifting apart. We have expanded knowledge, yet wisdom and restraint seem to be diminishing.

It appears as though humanity is seated before a magnificent feast into which, unknowingly, some poison has been mixed — the poison of greed, arrogance, selfishness, intolerance, moral indifference and uncontrolled desire. The tragedy is not merely that these tendencies exist, but that they are increasingly being normalised, celebrated and even projected as signs of success.

Sanatana Dharma never opposed prosperity or progress. It recognised worldly pursuits as part of life, but always under the guiding light of Dharma, self-discipline, compassion, truth and responsibility towards society and all living beings. Wealth without values becomes dangerous. Power without character becomes destructive. Freedom without self-restraint becomes chaos.

The greatest strength of this civilisation has never been military power or economic might alone. Its enduring strength has been its spiritual vision — the profound understanding that all existence is interconnected, that the same divine energy flows through all forms of life, and that humanity is one family. This spirit of coexistence, tolerance, non-violence, truth and accommodation made this civilisation unique and respected across the world.

Yet today, one sees increasing aggression in thought, speech and conduct; erosion of ethics in public and private life; growing insensitivity towards fellow beings; and a dangerous tendency to measure human worth only through wealth, status and influence. In the race to possess everything, mankind risks losing itself.

Still, despite all distortions and disturbances, the country continues to survive, progress and renew itself. This itself reflects the invisible strength of the Divine and the enduring foundation of Dharma deeply embedded in society. The patience, tolerance and resilience of ordinary people continue to hold the social fabric together even amidst enormous pressures and provocations.

The need of the hour is therefore not merely economic reforms or technological advancement, but moral and spiritual introspection. Humanity must pause and ask:

• Are we creating better human beings or merely smarter consumers?
• Are we strengthening civilisation or weakening its soul?
• Are we using knowledge to elevate life or merely to dominate and exploit?
• Are we leaving behind a world of harmony for future generations or a world of anxiety, conflict and emptiness?

True progress cannot be measured only by GDP, infrastructure or accumulation of wealth. Real progress lies in the quality of human conduct, purity of thought, compassion towards fellow beings, respect for truth, discipline in life and the ability to coexist peacefully with nature and society.

The world does not merely need more intelligent minds; it urgently needs awakened consciences.

Humanity can survive with dignity, peace and harmony only when it rediscovers and re-establishes the eternal values that sustained civilisation through centuries — Dharma, Truth, Compassion, Humility, Self-restraint and Reverence for Life. Material progress without moral and spiritual balance has created unprecedented wealth, but also deep unrest, anxiety, violence, greed and erosion of human sensitivity.

The crisis before mankind today is not merely economic, political or technological; it is fundamentally a crisis of values, character and consciousness. Education has increasingly become a means for earning a livelihood, but not for learning how to live wisely, ethically and responsibly. Societies are producing skilled minds, but not necessarily balanced human beings.

It is therefore time for governments, educational institutions, families, social organisations and spiritual institutions to seriously deliberate upon introducing value-based orientation as an essential component of human development. Humanity must consciously educate, train and inspire people in all walks of life about the meaning, qualities and benefits of a good and dharmic life. 

Children and youth should be taught not merely competition and acquisition, but also cooperation, discipline, honesty, compassion, duty, simplicity, respect for nature and responsibility towards society. Professional excellence without ethical grounding can become dangerous both for society and civilisation.

The essence of Dharmic life  should not just remain in books , speeches , and an empty  propaganda to gain brownee points . The true essence of a Dharmic life lies in daily, grounded practice rather than mere performative action. Living Dharma is about integrating ethical principles—such as Satya (truthfulness), Ahimsa (non-violence), and Seva (selfless service)—into one's everyday choices, interactions, and community work. SIMPLE LIVING, HIGH THINKING with very Noble Actions in Private and Public life make the society and the nation strong and pave the way for fast growth, equitable , all round economic and social welfare everywhere to the satisfaction of the body, mind and soul and enjoy the energy to the full extent.    

When philosophy translates into action, it shifts from empty rhetoric to meaningful impact, fostering both personal growth and a more compassionate society. It is about quiet integrity and taking responsibility for one's community rather than seeking public recognition.  It must  be widely circulated and practised through education systems, public discourse, community life, governance and workplace culture. Ethical conduct, integrity, social responsibility and humane values should receive due recognition and weightage even in career development and leadership evaluation. Nations that ignore moral foundations may achieve temporary prosperity, but cannot ensure lasting peace, stability and human happiness.

The future of civilisation depends not only on technological advancement, but on the capacity of human beings to live with wisdom, restraint, mutual respect and higher purpose. The need of the hour is not merely smarter humans, but nobler humans.

Otherwise, material prosperity without moral direction may ultimately weaken the very foundations upon which human civilisation stands.

Samastha Loka Sukhino Bhavanthu. May the Concept Vasudhaiva Kutumbakam be a reality in letter and spirit worth emulating and practising universally. 

T V G Krishnan

(Personal Views) 

Economic Patriotism PM's Saptha Swara for a Sustainable, Strong and self Reliant Economy.

 

PM’s Saptha Swaras for a Sustainable, Strong and Self-Reliant Economy

The Honourable Prime Minister’s recent articulation of the “Saptha Swaras” for strengthening the Indian economy should not be treated merely as pleasant words or temporary austerity suggestions. They represent a profound and practical framework for building a sustainable, resilient, self-reliant and shock-resistant economy founded on India’s own strengths, resources, discipline, competence and collective determination.

At a time when the global economy is increasingly exposed to geopolitical tensions, supply-chain disruptions, inflationary pressures, environmental stress and social uncertainties, the need for internal economic strength has become more important than ever before. Nations that depend excessively on external resources, imported lifestyles and unsustainable consumption patterns remain vulnerable to forces beyond their control.

The Prime Minister’s Saptha Swaras therefore deserve to be understood as seven guiding principles for long-term national stability and economic security.

These seven swaras are:

1. Work from Home wherever feasible

2. Less dependence on Gold

3. Reduced Fuel consumption

4. Greater use of Public Transport

5. Reduced use of Cooking Oil

6. Less Foreign Travel

7. Less dependence on Chemicals, Fertilisers and Foreign Products, with greater emphasis on Natural Farming and Swadeshi

If implemented sincerely and systematically, these measures can significantly reduce avoidable imports, conserve precious foreign exchange, improve public health, reduce environmental degradation, strengthen domestic production and enhance national resilience.

The philosophy behind these swaras is simple yet transformative: disciplined consumption, intelligent living and responsible economic behaviour can become instruments of national development.

India possesses enormous inner strength — human resources, entrepreneurial ability, agricultural capacity, technological competence, spiritual wisdom and cultural resilience. What is required is not merely economic growth, but economic character built on self-confidence, moderation, productivity and social responsibility.

The success of these Saptha Swaras, however, depends upon collective participation. Just as a great musical concert requires harmony between various instruments, the success of national transformation requires coordinated support from the Legislature, Executive and Judiciary, along with educational institutions, regulators, infrastructure providers, religious leaders, social reformers, businesses and citizens from all walks of life.

Educational institutions must inculcate disciplined and sustainable living. Regulators and policymakers must encourage responsible production and consumption patterns. Financial institutions should support productive and environmentally sustainable sectors. Religious and social leaders can help shape behavioural transformation by promoting moderation, ethics and national responsibility.

Most importantly, citizens themselves must recognise that economic patriotism is not merely a slogan but a way of life.

The time has come for India to move from excessive consumerism towards constructive contribution; from dependence towards self-reliance; from wasteful imitation towards confident Swadeshi-oriented development.

If pursued with sincerity, these Saptha Swaras can become not merely policy suggestions, but the foundation of a stronger, healthier, more balanced and more humane economy — one capable of withstanding global uncertainties while ensuring dignity, opportunity and security for all.

Such an approach alone can ultimately help India move towards the larger ideal of Vasudhaiva Kutumbakam — the world as one family — through strength, stability, wisdom and shared prosperity.

Samastha Loka Sukhino Bhavanthu

T V G Krishnan

(personal Views)

Re-Examining Inflation Targeting, Cost of Living, Productive Growth and the Strategic Role of Gold in Economic Stability

 

Re-Examining Inflation Targeting, Cost of Living, Productive Growth and the Strategic Role of Gold in Economic Stability

India stands today at a critical economic juncture where traditional frameworks governing monetary policy, inflation management, growth measurement and reserve management require a comprehensive re-evaluation in light of changing domestic and global realities.

The present note seeks to place before the Reserve Bank of India certain policy concerns and possible directions for broader discussion and examination.

1. Reconsidering Inflation as the Sole Anchor of Monetary Policy

The present inflation-targeting framework, while useful for monetary discipline and macroeconomic stability, may not adequately capture the actual stress experienced by households and productive sectors.

Inflation indices such as CPI and WPI often fail to fully reflect:

• rising healthcare expenditure,
• education costs,
• housing affordability,
• transportation burden,
• energy costs,
• erosion of household savings,
• and declining real purchasing power.

The actual concern of citizens is not merely statistical inflation but the increasing “cost of dignified living.”

There is therefore a need to examine whether monetary policy should gradually evolve from a narrow inflation-centric approach to a broader “cost of living stability framework.”

2. Inflation is Increasingly a Structural and Supply-Side Issue

A substantial portion of present inflationary pressures originates from:

• supply-chain inefficiencies,
• logistics bottlenecks,
• inadequate storage infrastructure,
• wastage in agriculture,
• speculative pricing,
• energy dependency,
• and excessive intermediation costs and tax spread.

In such circumstances, monetary tightening alone may not sufficiently address inflation and may, in some cases:

• suppress productive investment,
• increase borrowing costs,
• weaken MSMEs,
• and reduce employment generation.

It is therefore important to examine inflation in conjunction with:

• cost of production,
• storage and warehousing systems,
• transportation and logistics efficiency,
• energy economics,
• agricultural infrastructure,
• and market distribution systems.

A coordinated framework involving:

• Monetary Policy,
• Fiscal Policy,
• Industrial Policy,
• Agricultural Policy,
• and Infrastructure Development

may produce more durable and balanced outcomes.

3. Need to Revisit GDP-Centric Economic Measurement

GDP growth, though important, does not fully represent the economic well-being of society.

High GDP growth may coexist with:

• rising inequality,
• weak employment quality,
• declining savings rates,
• household indebtedness,
• and increasing social  and emotional stress.

There may therefore be merit in supplementing GDP-based assessments with broader indicators such as:

• purchasing power stability,
• employment quality,
• resilience of domestic production,
• savings strength,
• financial stability,
• and quality-of-life indicators.

Economic growth must ultimately strengthen the real economy and not merely expand financial aggregates.

4. Re-Examining the Strategic Role of Gold

Gold has historically served not merely as a commodity or ornament but as:

• a store of value,
• a reserve asset,
• protection against currency instability,
• a hedge against inflation,
• and a safeguard during geopolitical and financial uncertainty.

Globally, several central banks continue increasing gold reserves to strengthen resilience against:

• currency volatility,
• sovereign debt risks,
• sanctions exposure,
• and systemic financial shocks.

India possesses one of the world’s largest privately held gold stocks. A carefully designed and trust-based policy framework may help channel a portion of this dormant wealth into productive national use.

5. Possible Areas for Policy Exploration

The following areas may merit detailed examination:

A. Cost of Living Framework

• Development of broader indicators beyond headline inflation.
• Household affordability mapping across income groups.

B. Productive Inflation Management

• Linking inflation management with logistics and supply-chain efficiency.
• Strengthening agricultural storage and distribution systems.

C. Gold-Linked Economic Instruments

• Expansion of gold monetisation mechanisms. Gold Bank under the auspices of the Reserve Bank of India can be an excellent and innovative initiative.
• Gold-backed infrastructure and development instruments.
• Formalisation and recycling of idle gold reserves.

D. Monetary-Fiscal Coordination

• Closer coordination between monetary management and productive investment policy.
• Balancing inflation control with growth and employment objectives.

E. Financial Stability and Real Wealth Creation

• Encouraging productive capital formation over speculative expansion.
• Strengthening domestic savings and long-term investment culture.

6. Broader Strategic Consideration

The global economy is undergoing major transformations driven by:

• geopolitical uncertainty,
• technological disruptions,
• energy transition,
• supply-chain realignments,
• and rising financial vulnerabilities.

In this changing environment, India may benefit from evolving towards a more integrated economic policy architecture focused on:

• resilience,
• productive growth,
• real wealth creation,
• monetary stability,
• and long-term national economic security.

Conclusion

The time may have come to re-examine whether inflation alone should remain the principal anchor of monetary policy or whether broader national economic objectives relating to:

• cost of living,
• productive capacity,
• employment,
• household resilience,
• and strategic reserve management

should receive greater integration into policy formulation.

Similarly, the strategic economic role of gold deserves balanced and objective reconsideration not merely as a passive reserve asset, but as a potential instrument for strengthening economic resilience, supporting investment and protecting long-term national wealth.

                                              

Loka samasta sukhino Bhavantu.

T V G Krishnan

(personal Views)

(This article is published in Money Life dated 14/5/26)

Banks Loans and Recovery Agents at what Cost?

  Banks Loans and Recovery Agents at what Cost?

Apropos the editorial “Off the Tough Route to Loan Recovery” (ET, 1 May 2026), the growing reliance on stringent recovery measures points to a deeper malaise—not weak laws, but weak credit culture within the banking system. The saying that one can take a horse to water but twenty cannot make it drink holds true to bankers approach to credit. The problem originates at the appraisal stage. Credit is too often extended without a disciplined assessment of cash flows, viability, and repayment capacity. Lending, in several instances, has become exposure-driven rather than need-based. The outcome is predictable: stressed assets that later demand “tough routes” for recovery. All at a very high cost indeed.

Equally paradoxical is the continued exclusion of genuinely viable small borrowers. Despite decades of nationalisation, financial inclusion initiatives, and advances in technology, the banking system still shows limited sensitivity to the needs of the poor and informal sector. While larger exposures have at times benefited from relaxed discipline, deserving small borrowers struggle for access. The bankers are yet to get the feel of the poor and feel for the poor is a sad story. 

The solution lies not merely in tightening recovery mechanisms, but in reorienting banking practices. Credit must be anchored to cash flows, supported by effective use of technology and artificial intelligence for appraisal and monitoring. Integrating lending with transaction and deposit accounts can align credit with real economic activity and improve repayment behaviour.

Banks must return to basics—mobilising deposits responsibly and deploying credit prudently across all viable sectors. A system that lends with discipline will not have to rely excessively on coercive recovery methods. 

A shift from reactive recovery to proactive credit management is essential to restore both efficiency and credibility in the banking system.

Yours faithfully,
 T V Gopalakrishnan

( This letter sent to ET found published with modifications on 4/5/26)

Last Mile connectivity . Can we not have a better planning and enhanced efficiency and earn the goodwill and cooperation of people.?

 

Last-Mile Connectivity: The Missing Link in Urban Mobility Bengaluru. 

The city’s traffic crisis is no longer an inconvenience—it is a daily erosion of productivity, health, and civic dignity. Despite being projected as a global technology hub, the lived reality reflects administrative indifference and a worrying lack of coordinated action.

The problem is not merely one of infrastructure, but of governance. Roads choked by garbage dumping, rampant encroachments, and indiscriminate parking have turned mobility into a struggle. Add to this poorly maintained roads, unchecked potholes, and unauthorized speed breakers, and the result is avoidable chaos.

Equally concerning is the collapse of traffic discipline. Signal violations, reckless criss-crossing, and disregard for basic road safety norms have become routine. This is not a behavioural issue alone—it reflects weak enforcement and absence of sustained monitoring.

However, meaningful change does not require grand projects. It demands focused and well coordinated  execution of simple, practical measures:

• Keep roads clear of garbage and strictly prevent illegal parking and encroachments.
• Repair potholes promptly and remove unauthorized road obstructions.
• Enforce traffic rules consistently, without exception or interference.
• Strengthen last-mile connectivity by improving access to bus stands, metro stations, and railway hubs through smaller, well-managed feeder services.
• Ensure coordination among traffic police, municipal authorities, and transport agencies for real-time problem-solving.
• Encourage institutions and offices to promote pooled transport and reduce single-occupancy vehicle usage.

Last-mile connectivity remains the weakest link in the city’s transport ecosystem. Without addressing it, investments in metros and major infrastructure will continue to underdeliver.

What is needed is not more discussion, but visible accountability and time-bound action. The city deserves governance that matches its aspirations. Every citizen, in both personal and official roles, has a direct responsibility to improve the quality of life in our cities. Nowhere is this more visible than on our roads. Safe, reliable mobility is not just an infrastructure issue—it is a matter of discipline, accountability, and civic sense.

Traffic chaos is not created by systems alone but by everyday violations we choose to ignore. Lane indiscipline, signal jumping, and disregard for pedestrians erode not only safety but also dignity in public life.

If we seek better roads and smoother traffic, the starting point is not elsewhere—it is within us. Self-discipline, consistently practiced, is the foundation on which any meaningful improvement in quality of life must be built.

 A comfortable, peaceful and satisfying life does not come from expectations alone—it comes from responsible conduct.Each one of us can contribute by following rules, respecting public spaces, cooperating with authorities, and acting with discipline in our daily lives.

When citizens become partners in governance rather than passive critics, the quality of life improves for everyone.
Let us not wait for change—let us be the reason for it.

TVG Krishnan

(Personal Views)

New Provisioning Norms of RBI A welcome initiative for a very healthy , Stable and sound banking system.

 Strengthening Credit Discipline through a Precautionary Margin Reserve Framework

The recent regulatory stance of the Reserve Bank of India marks a significant and long-overdue shift towards reinforcing credit discipline and restoring integrity within the banking system. This approach, focused on early recognition of stress, prudent lending, and accountability, has the potential to materially improve the quality of bank balance sheets while aligning borrower behavior with responsible financial conduct.

In this context, it is important to recall that as early as 2004, the book “Management of Non-Performing Advances in Public Sector Banks”,dedicated to the Reserve Bank of India, published by the Indian Institute of Banking and Finance had articulated a structured and forward-looking framework to address the persistent challenge of non-performing assets. The central recommendation was the creation of a Precautionary Margin Reserve, built through small, risk-calibrated contributions from borrowers, supplemented by contributions from banks and, where appropriate, supported within a regulatory framework.

The essence of this proposal lies in shifting from a reactive to a pre-emptive and self-sustaining mechanism for managing credit risk. By linking contributions to borrower risk profiles and credit ratings, such a reserve would:

• Instill stronger credit discipline among borrowers
• Encourage more prudent and accountable lending practices by banks
• Create a dedicated buffer to absorb emerging stress and facilitate timely resolution of bad debts
• Reduce the recurring burden of recapitalization on the exchequer and other stakeholders

Importantly, this approach internalizes the cost of credit risk within the banking ecosystem itself, thereby sparing depositors, taxpayers, and the broader economy from the cyclical impact of mounting NPAs.

The current regulatory environment—characterized by tighter supervision, improved risk assessment frameworks, and emphasis on provisioning—provides an opportune moment to revisit and operationalize this concept. A well-governed Precautionary Margin Reserve Fund, aligned with existing prudential norms and supported by transparent oversight, can serve as a complementary layer to the present provisioning systems.

Had such a mechanism been institutionalized earlier, the magnitude and recurrence of the NPA problem could have been significantly mitigated. Nevertheless, the present shift in regulatory philosophy offers a timely opportunity to adopt a more durable and systemic solution.

A calibrated introduction of this framework—possibly on a pilot basis—would not only strengthen the resilience of bank balance sheets but also contribute to long-term financial stability and sustainable economic growth.

T V G Krishnan.

(Personal Views)