Governance is a universal and people centric Principle..

 Governance is a Universal and People-Centric Principle

Freedom → responsibility → good governance → institutional performance → welfare of all.

Good governance is ultimately responsible human living organised through institutions, guided by values, disciplined by accountability and protected by the rule of law. Its purpose is to ensure that democracy delivers not merely government, but justice, social order, sustainable progress and a better quality of life for all. 

Democracy provides the mandate; governance provides the mechanism; accountability provides the discipline; and the rule of law provides the foundation. Together, they should convert a nation's vision into action, mission into performance and policies into meaningful outcomes.

Governance Beyond Government

Governance is not limited to government. It is a universal principle that applies wherever people have responsibilities, exercise authority, use resources or affect the lives of others:

Individual → Family → Institution → Society → State → Nation → Humanity

Every institution—public or private, commercial or non-commercial—should therefore be judged by four simple questions:

Purpose: Why does it exist?
Conduct: How does it discharge its responsibilities?
Performance: How effectively does it achieve its objectives and use its resources?
Social Value: What legitimate benefit does it create for people and society?

Thus:

Vision and Mission tell us what we intend to achieve.
Governance determines whether we achieve it.
Values determine how we achieve it.
Outcomes determine whether society benefits from it.

Values, Duties and Responsibility

Responsible governance begins with responsible human conduct. Nature provides resources universally; their use and distribution therefore carry a responsibility to ensure equity, sustainability and social justice.

Development should consequently mean:

Progress with social justice
Freedom with responsibility
Rights with duties
Authority with accountability
Resources with stewardship
Governance with measurable outcomes

Economic growth alone cannot be the measure of progress. The true measure is whether development improves the lives of people and creates opportunities for all to participate in its benefits. It is time for every individual and every institution to perform to its full potential and contribute to making  Viksit Bharat a reality. Our collective endeavour must be to build an India that is prosperous, just, inclusive and a true welfare State in every respect.

 When Governance Fails

Good governance should identify weaknesses early, correct failures and preserve public trust. When failures accumulate without correction, the progression can become:

Weak governance → Unresolved failures → Loss of trust → Loss of institutional authority → Non-compliance → Disorder → Persistent disorder → Conditions approaching anarchy

Anarchy may arise from many causes. But prolonged or systemic disorder within a functioning democracy is a serious test of governance. The wiser question is therefore not merely how to control disorder after it appears, but how to prevent the institutional and social conditions that allow it to emerge.

The People-Centric Test

Institutions ultimately exist to serve legitimate human and social purposes. Their success should therefore be measured not simply by their size, power, profit or survival, but by the value they create for people and society.

The ultimate test of governance is simple:

Does the way we govern our individuals, families, institutions, society and State enable people to live with dignity, exercise freedom responsibly, fulfil their duties, receive fair opportunities and participate meaningfully in the benefits of progress?

If the answer is increasingly yes, governance is working.

If the answer is increasingly no, there is a governance problem—however impressive the laws, policies and institutions may appear on paper.

Good governance is therefore not merely the administration of laws. It is the continuous conversion of democratic authority, ethical values, institutional responsibility and the rule of law into justice, social order, sustainable progress and a better quality of life for all.

Good governance is ultimately about serving people, strengthening institutions and ensuring that progress benefits society fairly and responsibly. I conclude this write up with a quote from Whats ap message widely circulated on the eve of 80th year of independence celebrated on the 15th Aug 2026. 

               "Freedom is not a legacy to celebrate ;it is a responsibility to protect".  

Samastha Loka Sukhino Bhavanthu.

T V G Krishnan

(personal Views)

New Generation Banking Challenges and Issues

A new-generation intelligence framework for banking

KYC to UYC, AI to MI to HI to Total Intelligence

Can All These Bring Ethics and Accountability to Digital Payments?

Digital payments, particularly through UPI, have grown by leaps and bounds, reaching levels that were almost unimaginable a few years ago. In large parts of the country, especially in the retail and mass-payment segments, the use of currency notes has declined substantially. This is a remarkable reflection of India's technological progress and, more importantly, the widespread acceptance of that progress by its people.

The growth of digital payments has enormous potential for the economy. It can improve transparency, reduce transaction costs, widen financial inclusion and gradually overcome several weaknesses associated with cash-based transactions and traditional administrative systems.

But technology, however advanced, is only a means. The more important question is whether technology can also help strengthen ethics, values, honesty, integrity and accountability in the financial system.provided technology is combined with human judgement and a deeper understanding of the customer.  From “Know Your Customer” to “Understand Your Customer”

The banking system has long operated on the principle of Know Your Customer (KYC). KYC is indispensable for establishing the identity and address of a customer and preventing the misuse of banking channels. But in the digital era, knowing who the customer is may no longer be enough. What may increasingly be required is “Understand Your Customer” (UYC).

Within the limits of privacy and legitimate banking practice, UYC could help banks understand a customer's normal transaction behaviour, financial patterns, likely vulnerabilities and significant deviations from established patterns. Artificial Intelligence (AI) can make such analysis possible on a scale that human beings alone cannot manage. This could help identify suspicious transactions, unusual transfers, possible account misuse and even genuine mistakes before they become difficult to rectify.

A Simple Example

Consider a customer of Bank A making a UPI payment through a third-party interface such as PhonePe and, through an inadvertent mistake, transferring money to an unintended beneficiary whose account is with Bank B. The customer realises the mistake and immediately approaches Bank A. Technically, the payment was authorised by the customer and the money has already moved through the payment system. The payer's bank may therefore have limited ability to reverse the transaction unilaterally. But should the matter necessarily end there?

Once the error is reported, the banking and payment ecosystem should, wherever legally permissible, have mechanisms to identify the transaction, alert the beneficiary bank, place an appropriate hold or caution and facilitate recovery when the circumstances establish that the payment was genuinely erroneous.

Technical authorisation should not, by itself, settle the larger question of ethical ownership and institutional responsibility. The beneficiary has received money which, in such circumstances, was never intended for him or her. The banking system should therefore endeavour to facilitate correction rather than simply treating the transaction as closed because authentication was successful.

The Reserve Bank of India, perhaps through appropriate mechanisms under its Banking Ombudsman framework, together with banks' own persuasion and moral-suasion approaches within permissible parameters, could consider workable arrangements for dealing with such cases. The objective should be simple: to help ensure that money ultimately reaches its rightful destination based on entitlement and legitimate obligation. The person not entitled or intended by the sender cannot be allowed to enjoy such wrong credits by any means. Human or technical error should not be allowed to override ethics and morality.

AI as a Second Line of Defence .

This is where AI can become a powerful second line of defence. AI can potentially detect unusual behaviour at the point of transaction—a sudden departure from established payment patterns, unusually large or repeated transfers, unusual beneficiary relationships or other warning signals. Depending on the risk involved and the regulatory framework, such signals could trigger an alert, confirmation or additional verification. More importantly, AI need not stop working once the transaction is completed.

In the post-transaction stage, technology could help trace the movement of funds, identify the beneficiary institution, establish the relevant circumstances and facilitate a structured resolution when a genuine mistake has occurred. Technology should therefore not merely make money move faster. It should also make mistakes easier to detect and rectify.

Fraud Prevention Requires More Than KYC . Frauds involving bank accounts, identity misuse, social engineering and exploitation of digital platforms are constantly evolving. KYC establishes who the customer is, but it does not necessarily establish whether a particular transaction is consistent with that customer's normal behaviour. That is the gap UYC could help address.At the same time, such an approach must never become an excuse for indiscriminate surveillance or intrusion into legitimate customer privacy. There must be clear safeguards, proportionality, transparency and accountability in the collection, analysis and use of customer information. The objective should be better understanding, not unnecessary intrusion.

AI Cannot Replace Human Intelligence .There is also a danger in believing that AI can solve everything. It cannot. AI can identify patterns, correlations and anomalies at extraordinary speed. But Human Intelligence (HI) provides judgement, context, experience, empathy and accountability.The objective should therefore not be AI replacing human beings, but AI strengthening human intelligence and institutional responsibility. A genuinely customer-oriented bank should be able to ask not merely:

“Was the transaction technically authorised?”but also “Does the transaction make sense in the context of the customer, and if something has clearly gone wrong, what responsibility can the banking system reasonably assume in helping to correct it?” That represents an important change in institutional thinking—from merely processing transactions to understanding their circumstances and consequences.

Market Intelligence Adds Another Dimension

There is yet another dimension that can make this framework much more comprehensive: Market Intelligence (MI). KYC tells the bank who the customer is. UYC helps it understand how the customer normally behaves. AI analyses patterns and anomalies, while Human Intelligence interprets what those signals actually mean. But a customer does not operate in isolation.

Market Intelligence can provide information about the environment in which the customer operates—industry conditions, markets, competitors, suppliers, customers, prices, demand, regulatory developments and emerging risks. 

A Powerful Application: Credit and NPA Prevention

This becomes particularly valuable in credit appraisal and NPA prevention. A borrower may have an excellent KYC profile and an apparently satisfactory account. Yet Market Intelligence may reveal that the borrower's industry is deteriorating, major customers are under stress, commodity prices have changed sharply, or the market itself is becoming increasingly unviable.

AI may simultaneously detect corresponding changes in the borrower's account operations. Human Intelligence can investigate and interpret the signals. The bank can then take appropriate corrective action before the problem develops into an NPA. The same approach could strengthen monitoring of the end-use of funds, early-warning systems and responsible lending. From Identification to Responsible Decision-Making.Thus, a much broader intelligence architecture begins to emerge:

KYC + UYC + MI + AI + HI = Total Intelligence

Each has a distinct role:

KYC identifies.

UYC understands.

MI contextualises.

AI analyses.

HI interprets.

Total Intelligence decides.

The concept is not to create a system that knows everything about everyone. Nor is it intended to create excessive surveillance. Its purpose should be to enable banks to make better, more responsible and timely decisions while respecting privacy, legitimate freedom and the rights of customers.

From Transaction Processing to Responsible Banking

No financial system can realistically be made completely foolproof. Human beings will always find new ways of circumventing systems. But an intelligent combination of KYC, UYC, Market Intelligence, AI and Human Intelligence could make banking considerably more preventive, transparent, resilient and accountable. India has already demonstrated that technology can transform the way millions of people transact. UPI is a powerful example of how rapidly people can adopt technology when it is convenient, inexpensive and accessible.

The next challenge is to ensure that trust keeps pace with technologyDigital payments should not merely be fast; they should be safe They should not merely be convenient; they should be accountable.They should not merely prevent fraud; they should also provide meaningful mechanisms for correcting genuine mistakes. And banks should not merely “know” their customers; they should increasingly understand them, while respecting privacy and individual freedom. Ultimately, technology should not be allowed to become an excuse for avoiding responsibility. The more powerful our technological systems become, the greater should be the emphasis on human values, ethical judgement and institutional accountability.

The real opportunity before the banking system is therefore not simply to build a more sophisticated digital payment system, but to build a more intelligent and responsible financial system.Technology has already changed the way India moves money. The next step is to ensure that it also strengthens the values with which money is handled.That may be the true meaning of moving from KYC to UYC, from AI and MI to HI, and ultimately towards Total Intelligence.

Samastha Loka Sukhino Bhavanthu. 

T V G Krishnan

(Personal Views)

Why not only Transaction Fee instead of Many other taxes?

 Dear Sir,

Why not only a transaction fee instead of many other taxes? Simplify taxes by removing various other taxes.

Apropos your editorial, "Why UPI Needs Transaction Fees" (ET Aug 7), UPI in India is a grand success and has become as good as a currency in circulation, eliminating the cost of printing hard currency, its storage, distribution  maintaining currency chests, and the quality of printed currency. UPI is faster and relatively safe.   Many other countries are adopting it because of its convenience, handling and comparatively better accounting, and tracking of information regarding how and where the money moves. This helps enable the building of a huge mine of information/data, assisting policymakers from a broader perspective. UPI's very success in India is because it carries no cost perhaps the only exemption seen in the whole system of transactions. If this is also brought under some levy,  it may catch on in such a way that the levying becomes attractive over a period, building inflationary expectations and adding to the cost of living without any escape route later on. If the very thought of MDR is not nipped in the bud, it may turn out to be an inevitable source of revenue like many others already in vogue. This could introduce unhealthy practices adding to the list of worries from administrative and policy angles.  If transaction fees can replace so many other taxes including Income Tax, no doubt that would be  a very welcome and transformative change worth pursuing.      

(  this letter addressed to ET )

T.V.G Krishnan

(personal views) 

( This letter was sent to ET ).

RBI has kept the rates unchanged in tune with the Market sentiments.

 Figures indicate economy is resilient, but fact remains that challenges to the economy from Politics, economics, social and technology ( PEST) angle  remain as defiant as ever. Added to these, the projected possible failure of the monsoon and geo political uncertainties also remain as challenges to keep the inflation and inflationary expectations under control. The Cost of production which is dependent upon monetary , fiscal and administrative policies also remains high as it is , without leaving any scope for reduction in the near future. Imported inflation always remains a challenge and maintaining price stability and economic growth through monetary policy alone is not sustainable is the reality. In these circumstances, the Present Monetary policy keeping the Policy Rates unchanged and maintaining RBI's stance Neutral itself can be considered as the most accommodative policy and the MPC has done an excellent job. The need to balancing the market sentiments has also been well factored into the policy announcement. 

T V G Krishnan

(this comment appeared in Money Life in response to the Article RBI Keeps Repo Rates unchanged Aug7,2026.)

Re

RBI MPC in a Dilemma

 Dear Sir 

Apropos the Article Count _ Counterpoint (ET 3rd Aug 26), the MPC is in a Catch 22 situation to decide on the policy change on rates in the background of continuing inflation ,inflationary expectations thanks to geopolitical uncertainties, failure of monsoon prospects and visible expectations of economic growth . The need of the hour is price stability which is a gambling not only on agricultural production, marketing ,distribution and monsoon but several other factors including laxity in governance and fiscal position. Cost of living and inflation are two parallel lines and cost of production is altogether another dimension dependent upon several linkages and incentives having both tax and administrative implications.

While MPC can have control on the Financial system through monetary policy  ,the Government having control on both Fiscal and administrative policies has to do lot of manoeuvring  to ensure economic growth keeping the prices stable defying the challenges from political Social and technological dynamics seen of late due to AI invasion every where. 

T.V.Gopalakrishnan

( email( Letter addressed to ET )

 

Beyond Haircuts and Provisions: Why Indian Banking Needs a Borrower-Linked Precautionary Reserve

Nearly two decades ago, in my 2004 book Management of Non-Performing Advances in Public Sector Banks—published by the Indian Institute of Banking and Finance (IIBF) with a foreword by former Reserve Bank of India (RBI) Governor Dr. C. Rangarajan—I put forward a concept aimed at strengthening the preventive architecture of Indian banking: the Precautionary Margin Reserve (PMR).

The core idea was straightforward yet fundamental: while banks are required to maintain provisions against bad loans, borrowers who benefit from financial credit should also build a dedicated, loss-absorbing financial buffer during good times.

Today, as the banking sector reflects on the massive resolution haircuts accepted in recent years, this 20-year-old proposal deserves a fresh, objective evaluation.

The Math Behind the Resolution Dilemma

Resolving stressed assets is vital for clean balance sheets and economic dynamism. However, the sheer scale of credit sacrifices made during resolution cycles raises an unavoidable policy question. Recent compilation of data shared by the All India Bank Employees' Association (AIBEA)—derived from a reply in the Rajya Sabha—paints a stark picture:

• Admitted Dues (2021–22 to 2025–26): ₹8,48,700 crore

• Amount Realized by Banks: ₹2,41,666 crore

• Sacrifice / Haircuts Taken: ₹6,07,034 crore (~71.5%)

When banking institutions absorb haircuts of this magnitude, the ultimate financial strain trickles down to key stakeholders—depositors, taxpayers, and shareholders. Corrective mechanisms like the Insolvency and Bankruptcy Code (IBC) and debt recovery tribunals are essential, but they act after the asset has already decayed.Should Indian banking rely almost exclusively on post-facto recovery, or is it time to build stronger borrower-side preventive safeguards?

Rethinking Risk: The Precautionary Margin Reserve

The Precautionary Margin Reserve concept operates on a principle of shared risk responsibility:

1. Borrower-Side Accountability: Rather than placing the entire onus of provisioning on the lending bank, borrowers build a risk-indexed reserve proportional to their loan size, account conduct, and risk profile.

2. A Cushion for Rainy Days: In times of severe business downturns or account stress, this reserve serves as the primary line of defence to absorb financial shocks before invoking bank provisions or forcing steep resolution haircuts.

3. Dynamic Risk Pricing: Borrowers with exemplary credit history, low leverage, and strong repayment track records contribute significantly lower margins, creating a direct financial incentive for sound governance.

Adapting a 2004 Concept to a Modern Regulatory Era

The financial landscape has transformed dramatically over the past two decades. Regulatory frameworks have matured, risk architectures are more sophisticated, and frameworks like the Expected Credit Loss (ECL) model are reshaping bank provisioning. The Precautionary Margin Reserve does not need to be implemented exactly as envisioned in 2004. Instead, central bank regulators and financial planners could explore its modern feasibility through flexible mechanisms:

• Risk-Indexed Calibration: Designing reserves so they do not restrict liquidity or burden genuine, productive borrowers.

• Targeted Pilot Testing: Introducing the reserve framework initially on a trial basis for high-value corporate exposures or specific capital-intensive sectors.

• Loss-Absorption Hierarchy: Positioning the borrower reserve as an early-stage buffer before enforcement or haircut-heavy restructurings.

• Feasibility Studies: Conducting independent empirical research to analyse how borrower-held cushions impact total system-wide credit costs.

Conclusion: Protecting the Future of Indian Banking

No single policy instrument can completely eliminate non-performing assets or business failures. However, relying solely on corrective tools after defaults occur leaves the financial ecosystem vulnerable to heavy losses.

A suggestion made two decades ago may hold even greater relevance today. By blending strong recovery tools with proactive, borrower-linked preventive mechanisms, the Indian banking system can build a more resilient, equitable, and sustainable ecosystem—one that protects depositors, shareholders, and the broader economy for years to come.

Samastha Loka Sukhino Bhavanthu.

 T V G Krishnan

( personal Views) 

Earned to Live, Taxed to Death

 Apropos your editorial, "More Billionaires in Your Neighbourhood" (ET 29/7/26), it makes for an interesting and satisfying read as prosperity is increasing all around. However, a broader tax net, coupled with faster real wage growth, is a realistic position and the need of the hour amid widening inequality daily, fleecing inflation and an unbearable cost of living due to an all-around price increase, figuratively speaking, from salt to camphor. Progress of IT administration is admirable but the spirit behind the tax reforms—to make them more rational and sensible, keeping the intent in letter and spirit as intended by the Budgetary policies and the FM's recent remarks—does not appear visible in the practice of not refunding the eligible refunds. Instead, refunds are being adjusted against tax demands previously raised even a decade ago and kept in abeyance without resolving them based on their merits, the genuine reasons presented to the department, or ignoring the department's own policy regarding not reopening cases pending beyond a certain prescribed period, and disregarding the honesty and integrity of taxpayers based on past records. Making tax compliance friendlier, simpler, and more equitable—and, above all, collecting taxes at source without requiring returns up to a cutoff point, if possible—makes more sense and is more pragmatic given the voluminous growth in transactions and earnings spread through enhanced digital payments, and the vast employment of people enjoying the trickle-down effect of income distribution from more millionaires and billionaires. It is time to re-examine the filing of returns if income consists only of salary, pension and interest from deposits.   

 

T.V. G Krishnan

Bengaluru .

(Personal Views). 

( A modified version of this letter appeared in ET july 30,2026)