Housing and middle and lower class people

The affordability of middle and lower class people to acquire a house has gone down considerably thanks to persistent high level of general inflation and continuous increase in the cost of land and houses due to speculative buying by those who hold black money and enjoy a salary income more than the average earnings of an average Indian due to boom in IT and favourable taxation policy for higher income group. Multiple holdings of houses have become a fashion and a way of investment by higher income group due to tax incentives and easy availability of loans. This is not applicable to lower middle class and wage earners who constitute a major chunk of the population. For them to have a two square meals a day is itself a luxury. The prices for food cloth, fuel travel, education health etc are so high threatening and frightening the very survival of these people and the question of owning a house does not even come to them even in the wildest of dreams. The Govt may or may not be aware of the ground realities the people at the lower levels of the pyramid face as the data collection and interpretation do not seem to have been reflecting favouring this group. This group deserves a special treatment and earlier the Govt acts the better for the govt and the people.

(This comment appeared in ET dated 3/12/12)

Dr.T.V.Gopalakrishnan.

Dhanalaxmi Bank to remain Strong

Dhanalaxmi Bank,one of the oldest private sector Banks from Kerala has been in the news for quite some time unfortunetely not for good reasons. The bank underwent some drastic changes under the earlier CMD Mr Chaturvedi and it lost its grip on its traditional and conservative banking. Historically, the bank has some Union Issues which got aggravated with the massive induction of outsiders at a exorbitanly high salaries under Mr Chaturvedi's regime. Besides, the composition of assets and liabilities which had some semblance pf order and were manageagle had undergone sea changes with Whole sale deposits and whole sale lending replacing the retail deposits and retail borrowers causing hardships in terms of high costs and poor recoveries. With the exit of Mr Chaturvedi, some of the top Executives have left the organisation and with them the advances have become NPAs and the deposits have also disappeared. It will definitely take some time for the new Management to adjust the business composition both with HumanResources and Assets and liabilities.
The bank is traditionally strong with a large clientele and It has all the strengths to run on viable lines.It only requires good guidance from the RBI and support for some time to stabilise its recently changed management set up and bring back its own way of functioning with its traditional approach combined with the modern way of banking. The bank is strong and it has all ingredients to remain strong and grow strong.

Dr.T.V.Gopalakrishnan

( This comment appeared in The MInt dated 23/11/12)

The Cost of NPAs are borne by innocent stakeholders

The staggering NPAs of banks are nothing but a different kind of loot of public money mostly by corporates and other borrowers. More the NPAs mean more loss of taxes, depositors and other stakeholders money and there is no justification in finally writing off the losses. The business of banking is based on public money and business should be run on professional and commercial lines. Borrowers cannot expect to run their business using depositors' money ruthlessly and without adhering to the discipline expected of them. Economic Slow down may be a cause for business failures but the failures cannot be fully accounted for by business failures. Bankers also have to be blamed for recklessly lending throwing to winds basic principles of lending. The only way to prevent formation of NPAs and discipline the bad borrowers is to have a rating introduced for them based on their performance and conduct of accounts and levy a small penalty for deterioration in rating. This way borrowers will be disciplined and banks will have funds collected from bad borrowers to cover up the NPAs over a period. Other stake holders will definitely welcome such a move.

Dr.T.V.Gopalakrishnan

( This comment appeared in ET dated 23/11/12).

A Sandy Solution for Bihar's Coffers

Dr.T.V.Gopalakrishnan says

The author's suggestion is excellent and makes sense in tackling the sand shortage experienced in various states and the law and order problem caused by land Mafia. The solution offered also benefits Bihar in many ways by enabling it to augment its revenues and finding adequate resources to take care of its other pressing needs. The economy needs integration of policies which benefit the various states in different ways. Labour shortage is felt in most of the southern states and the north easter states can make use of their surplus labourers by sending them to south with proper coordination with various state authorities. This way sharing of surpluses mutually among the states will find solution to many of the problems faced by various states and the benefit is for the entire economy, society and the nation. The author deserves special kudos to have come out with a good suggestion. Will someone look into this?

( This comment appeared in Times of India dated 18/11/12 in response to an article A sandy solution for Nitish's Coffers)

Provide at least some toilets for common masses

Dr.T.V.Gopalakrishna (Mumbai)says:

November 18,2012 at 11:54 AM IST

The author deserves all kudos for having come out with a suggestion to have a Latrine Policy for the nation.Mr Jairam Ramesh was right when he made an observation we require more Toilets than temples.It is really a shame that such topics come to the fore for discussion openly as the nation has miserably failed to provide the basic facilities to its people after 65 years of ruling by Indians after independence. Bangalore the city known as California for its IT revolution and having Internationally well known Technocrats and billionnaires is still not having adequate toilets for its labour force and many of the less fortunate people. It is a common sight in the morning hours to see people with mobile on one hand and a bottle of water on the other hand moving to open places left for development of Gardens and community centres for their toilet needs. One wonders after 65 years of independence and having earned the status of fast growing economy and having the potential to attain the super economic power of the world , how the very basic needs are not met. The econoomy is looted left and right but the looters can spend part of the money to provide common toilets which will be well appreciated. and loot will be to some extent justified and tolerated.

This comment appeared in Times of India dt18/11/12 in response to an Article India needs a Latrine Policy in Times of India.

Abolition of CRR and RBI Balance Sheet

The article carries the strong defence in favour of not paying intereston CRR balances.SBI's Chairman's observation that CRR is a waste on the economy is something very strange and it only indicates that he cares more about SBI's balance sheet than the Economy's balancesheet which broadly reflects on RBI's balance sheet.The author has explained very well the importance of CRR as a monetary control tool and the need for the Govt to restrain on its fiscal flamboyancy.Strong RBI balance sheet is only a reflection of the weakness of the economy and this needs to be appreciated both by the Govt and the banking system.No doubt the economy should grow and that is the common objective of the Govt, RBI and the banking system.But to ensure growth,the economy needs a strong financial system and sound fiscal policies and RBI as a responsible Central Bank of the country has a role to play taking the interests of the economy and its people.Inflation if brought under control,it will benefit all.

from: Dr.T.V.Gopalakrishnan

Posted on: Nov 16, 2012 at 09:32 IST

 (This comment published in BusinessLine is in response to an article Not the Right Time to abolosh CRR appeared in B/Ldt 16/11/12.)

The need to regulate Domestic Work

Comments:

The article reads well and has highlighted the need to recognise the domestic workers importance and bring them under proper legislation and regulation.Sincethe liberalisation of the economy in the 1990s and with the invasion of Information Technology, there is a boom in the construction activities and related services,auto industries and things like that. This has resulted in the migration of labourers from the rural areas to urban and metro politan centres.The demand for domestic servants has increased manifold and their wages have taken a steep hike whether recognised or not officially.Of course they are not formally organised,but in metro centres like Bangalore,Mumbai etc,they are informally organised for good though the exploitation continues unchecked or noticed.As rightly said,the womenfolk form the majority of the domestic help but it has some negative social implications as many of their men folk remain unemployed and resort to a life socially undesirable and needs Govt's care

from: Dr.T.V.Gopalakrishnan

Posted on: Nov 16, 2012 at 10:41 IST

This appeared in Business Line dt16/11/12 in response to an article  Changing Patterns of Domestic Work in Busiess Line dated 12/11/12)

Asset Liabilities

This refers to the edit “Worsening asset quality” (November 12). The deterioration in the quality of assets may be partly due to the downtrend in the economy, but the same cannot be taken as a matter of consolation for banks and stakeholders of banks. The seeds of non-performing assets (NPAs) are sown during the boom period when banks expand credit, throwing caution to the winds all appraisal standards. Borrowers take full advantage of this liberalised approach of the banks. The only way to curb formation of NPAs in banks is to discipline the borrowers by strict appraisal standards and close monitoring of loan accounts. They need to be rated based on their conduct of loan accounts. Banks should levy a small fine when their performance deteriorates. As it is, the cost of maintaining bad accounts in banks’ books is debited to the profit and loss account, which is at the cost of depositors’ interest and other stakeholders’ share of dividend.

T.V.Gopalakrishnan.
( This letter in response to an Editorial Worsening Asset quality in Business Standard dt 12/11/12 appeared in BS dated 14/11/12).

Computerisation of DRTs at whose Cost?

The move to computerise DRT's operations is good but will it help to improve the recoveries of loans is doubtful. As it is,the expenditure incurred to maintain the bad debts in banks books and recover the dues throgh various means is very high and is by and large borne by the stake holders of banks and by the society through tax.It is time a serious study is made on the over all cost incurred by banks and by the Govt due to the borrowers indiscipline and banks'lackadaisical approach in disciplining and educating the borrowers to conduct the loan accouns satisfactorily as the money enjoyed by them belong to general public and they have no right to misutilise them.Genuine business failures are understandable but bad debts arising out of such failures are very few and far between.It is time the cost of bad debts is passed on to the borrowers by banks by rating them and levying a small penalty based on their performance.The other stakeholders of banks should take up the issue with RBI&Govt

 

 

  Dr.T.V.Gopalakrishnan

(This comment got published in response to an article FM considers Computerisation of DRTs to improve Recoveries appeared in Business Lines dated 14/11/12) 

RBI and Rural credit

The priority sector is the most neglected sector is the ground reality if one were to go by the contribution of agriculture to the GDP which has been falling year after year.This is one area which enjoys lot of discussion and is always talked about but the fact remains that after the setting up of NABARD,niether theRBI nor theNABARD has given undivided attention to the development of the rural sector which include agriculture, micro enterprises and all rural linked activities.Financial Inclusion is way behind the target.The role of RBI in developing the rural segment needs to be reexamined in the context of an exclusive set up available in NABARD for this purpose. The times have changed and the rural scenario has also changed after the reforms since 1991 and it is high time a total review of the rural segment and the financial system is undertaken to clearly define the role of NABARD, RRBs,Cooperative banks, Micro  Finance  money lenders,etc.. EARLIER THE RBI is relieved the better. The Central Bank should worry about the growth of the economy and controlling inflation keeping the financial system in tact. Development of agriculture and rural sector should be made the exclusive prerogative oF NABARD. RBI should only be overseeing the progress.

 

  Dr.T.V.Gopalakrishnan

 

( This comment appeared in Business line dated 9/11/12 in response to an Article on  Redefine Priority Sector Lending)

FM's Meeting PSU Banks

 

The FM's meeting PSU banks on the 15th of November 2012 to take stock of things at this juncture when the economy needs solid support from them is welcome. The FM should exhort bankers on the following items which will give a boost to the economy.1)They have to reduce the interest rate for the manufacturing sector by suitably adjusting their present NIM which is very high compared to International standards. The banks cannot expect to make huge profit at the cost of the economy.2) The Savings bank interest rate though deregulated has been kept unchanged at 4% which is nothing compared to the inflation rate prevailing at  double digits. 3) NPAs need to be tackled by being very strict with borrowers and this can be achieved only through rating of the borrowers and levying a small penalty based on their conduct of accounts. This levy over a period will be sufficient to cover the NPAs and the provisions towards NPAs which is at the cost of all other stake holders particularly the Govt and depositors can be minimised. The loss on account of NPAs needs to be assessed by each bank and this needs to be monitored by RBI and FM jointly. The write offs should be subjected to checks and balanced and this needs to be critically evaluated.  4) The cash deposit ratio needs to be considerably brought down to improve profitability.5)

 ALM needs to be intensified to bring down cost and maximise profit.6) The establishment cost  needs a close watch and wasteful expenditures  to be meticulously avoided. The IT should be put into optimum use to avoid wasteful expenditures on travels  seminars and conferences. 7) Financial inclusion should be viewed as a business opportunity and to make it a success it is better for banks to seek the assistance of social workers and other agencies engaged in different activities in towns and villages. The approach that only those sitting in HOs know everything has to be shelved and they should come down to ground level realities.

The FM should review the  customer service  and a  Ratio to assess  Customer Service   akin to CRAR should be attempted.

RBI's emphasis on inflation control cannot be faulted

RBI's emphasis on inflation control cannot be faulted


The cost of inputs has increased manifold and this is what the RBI is concerned about. Inflation has not only affected the masses but also investors, and producers of goods/services.

November 4, 2012:

Kudos to the Reserve Bank of India Governor D. Subbarao for keeping the key rates unchanged in its second quarter monetary policy despite pressure from the Government and the market.

The Governor’s concern about persistent inflation and inflationary expectations compelled him not to resort to a rate cut, which the Government had wanted.

Though the Finance Minister P. Chidambaram came out with a blueprint to bring down the fiscal deficit from the present 5.8 per cent to 3 per cent by 2016-17, the RBI perhaps was not fully convinced whether it can be achieved, going by past trends and uncertainties on various counts.

High deficits

The fiscal and current account deficits continue to remain high, and the measures for reducing the fiscal deficit by increasing fuel prices and attracting FDI will take time to fructify. And these may not be sufficient to enhance the revenues of the Government and attract investments.

Further, the measures are also not adequate enough to boost growth, particularly industrial, which is dependent on several other factors, such as availability of land, power, ease of doing business, dependable taxation and labour policies, and so on.

Economic growth has been hit due to several other factors, such as high and persistent inflation, prevalence of corruption, black money, political uncertainties, lack of administrative measures and delays in decision-making by bureaucrats. The RBI’s approach has apparently irked the Finance Minister and his immediate reaction was expressing disappointment by saying that “if the Government has to walk alone to face the challenge of growth then we will walk alone.”

This sounds as if RBI is against growth and not supportive of Government’s initiatives in this regard.

The objectives of the monetary policy have always been and continue to be economic growth and price stability, and the Finance Minister cannot forget the fact that RBI has been doing its best to enhance credit to the agriculture, manufacturing and retail segments.

The Cash Reserve Ratio (CRR) has been eased to enable banks have more funds at a lower cost so that they can lend at cheaper rates. The current interest rates are not too high, but industrialists are clamouring for more reduction.

The cost of inputs, in general, has increased manifold due to the overall rise in prices and this is what the RBI is concerned about.

That inflation has not only affected the masses but also investors and producers of goods/services is a fact which the Government needs to ponder and address.

Bring inflation under control, then the confidence in the economy will improve bringing along with it the much-needed investment and growth is perhaps the message the RBI Governor has intended through this review.

Different path

Unfortunately, the RBI and the Government have been, intentionally or unintentionally, moving in different directions, though the goal is the same — economic growth with stability.

Savings have dwindled, the investment priorities have changed (from production to speculation) and everybody wants to make quick money exploiting the situation. Ethics and a value-based approach to investment and production seem to be fast disappearing.

The political climate and lack of confidence in the economy are keeping away prospective investors. Governance, which is the foundation for any economy to ensure sustainable growth and equitable distribution of wealth, needs to be strengthened. There needs to be total coordination between the Government and the Reserve Bank.

The remarks of a senior banker that higher provisioning will dent banks’ profit is uncalled for taking into account the huge accumulation of bad debts in banks’ books.

Indiscipline among the borrowers has been basically due to banks extending undue favours to ineligible borrowers and their failure in sanctioning loans without adhering to sound principles of lending.

Some of the bad debts may be due to the slowdown of the economy but the tendency of bankers to expand credit ignoring sound principles of lending needs to be curbed.

The regulator cannot be expected to be a silent spectator to the deteriorating quality of banks’ assets. The loss on account of staggering NPAs is being subsidised by all stakeholders, which include the Government, the taxpayers, the depositors and owners. And this cannot go on.

The banking system that is sound and stable needs to come to the rescue of the economy by respecting the regulatory requirements and, at the same time, playing its role in a professional manner without yielding to the temptation of making easy profits.

High margins

The net interest margin of banks in India remains high compared to international standards and they should, therefore, be in a position to bring down lending rates through efficient management of their assets and liabilities.

As the RBI Governor rightly put it, only in a regime of low and stable inflation can consumers and investors make informed decision.

Growth is a function of good investment for which the environment should be conducive and this calls for appropriate steps from the Government.

(The author is a Mumbai-based consultant. The views are personal.)

Keywords: RBI, Monetary Policy, Interest rate cut, Inflation, persistent inflation and inflationary expectations, rate cut

 

This article got published in THE HINDU BUSINESSLINE dated 5/11/12,

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King Fisher closure and Air fare Increase

''This approach of airlines needs to be curbed and exploitation of the situation is not good for any business . This sort of greed to extract money will not be good and carries lot of illwill and curse. There should be ethics and honesty in any business to last long. The Govt also should fix a ceiling beyond which Airlines should not charge. The ceiling can be linked to the distance so that travellers also can have some calculations. The present tendency to take the flight charges to the roof without any rationale poorly reflects on lack of adminstrative controls and the image of the airlines.Will Some one look into this?.'' (This comment in response to an Article on King Fisher airlines appeared in Times Of India Dated 21/10/12)  T.V.Gopalakrishnan

Marriage and Toilets

The Minister's approach is welcome and it should be taken seriously by all right thinking citizens. People are able to have a mobile phone but they are prepared to live without a toilet, the very basic necessity. In fact Minister deserves applause for openly pleading and compelling people to have more of toilet facilities which are very essential and a must to maintain personal and society hygene. Most of the cities and important pilgrim centres have no toilet facilities and people use public road and gardens for easing themselves. Even in Mumbai one can see people ease themselves in Race course in the morning hours as there are no toilets anywhere near. One wonders with all developments, improved GDP growth and growing literacy standards how people are tolerating the apathy on the part of administration to provide common toilets in public places. The Minister can even take some initiative to have a RTTF ie right to have toilet facility like RTE, bill passed in Parliament. The schools and colleges also should consider to educate people on this issue. Nothing wrong in that Society and the people should remain clean.(This comment in response to Miniter Jayaram Ramesh appeal to brides to insist for Toilets as a condition to get married appeared in Times of India dated 20/10/12) Dr.T.V.Gopalakrishnan

Two Kitchens and additional Cylinders

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	''This is utter nonsense. In India as it is Joit family system has broken up and nuclear family system in vogue will also get shattered with this move of the Govt to allow additional cylinders based on two kitchen Concept. In metro centres like Mumbai Delhi etc it is unimaginable to have two kitchens in flat where one kitchen itself is a luxury.How the brian works in taking such illogical decisions is really a wonder and deserves special award. This will only pave way to enhance corruption and make people to invent and innovate to have false documentary proof to show that they have two kitchens. As it is with bribe any document is possible and such erroneous decisions will only add to the mess already created by the Govt in reducing the cylinders quota. The best approach should have been to keep a watch on false distribution of cylinders meant for domestic use to commercial use which is rampant. Many families use only six to seven cylinders and distributors records may be showing as 12 cylinders and more. This is where the problem lies. The Govt has to ensure that by no stretch of imagination misutilisation is possible and for that they must have accurate data on families and commercial establishments.Corrupt practices in vogue in oil companies and distributing agents are the major issues to be tackled. Instead of this , the present approach to split the kitchen into two will bring more of family problems and end up with more demand for cylinders than what was original demand before the reduction of the quota.The move is to say the least the most foolish.'' (This comment   on the article ''Two kitchens can get you two LPG connections " appeared in Times of India daated 21/10/12)

Confidence Deficit

This refers to your editorial “Loyalty above duty” (October 11). Having allowed and tolerated all sorts of scams and corruption all these years, it would have been better if the prime minister had maintained his characteristic silence rather than talk about measures to prevent corruption. Considering his government has lost credibility, particularly in curbing corruption, his latest statement that the Prevention of Corruption Act would be amended will do little to convince people.

Besides, the masses have suffered at the hands of high inflation, poor GDP growth, unemployment, high fiscal and current account deficits and so on. The government’s insensitivity to people’s problems has affected their morale. So, the high hopes riding on the prime minister when he took over in 2004 seem to have faded and cannot be easily revived.

(This letter appeared in Business Standard dated 12/10/12).

Improve Cash flow by being economical in spending and bringing back the travelling public


King Fisher can come back to business provided it regains the confidence of the travelling public particularly middle class. The KFA has to be very very economical in all its dealings to start with. By offering round trip tickets and group booknig for family and other groups with very good discounts, it has to ensure that the flights are filled up without having any vacant seat.2)It has to start with flights where the potential to fillup all seats are Optimum. It has to allow excess baggage at some concessions. If possible it can canvass business for one or two years from very regular travellers for a lumsum initial payment for 10 or 15 trips and improve its cash flows.3) Make some arrangements through Mr Mallyas contacts and influence to clear the wage arrears of its employees and earn their goodwill and support to run the business. They themselves can canvass passengers through their special efforts and small incentives. 4) Give some special incentives to travel agents to canvass booking and see that the flights are full.5) Convince bankers to defer insistence on immediate reapyment of loans and see that as and when cash flow improves their dues are cleared in easy instalments.6) Negotiate with tax department and suppliers of fuels to receive payments on easy terms and instalments depending on the improved cash flow.7) Avoid heavy payments beyond the capacity to Executives till such time the company reaches break even point.8) Raise interest free loans from well wishers of the Company against issue of tickets towards repayment of loans.The KFA enjoys very good patronage from many bigwigs of the society and it should not be difficult to raise a few crores.8) Let Mr Mallya resist to exhibit his flamboyancy using the Company's funds at any cost.He has to project the image of a business professional and show his business acumen.He can easily target corporate clients for their travelling needs through King Fisher.9) The company can take a lot of small steps to make a come back.If other airlines can run profitably why not KFA?

( This comment appeared in Business Standard dt13/10/12 in response to an Article on KFA and Mr Mallya)

Being a practical banker himself in his previous avatar,What ever Mr Chakrabarty has said has to be accepted at face value.The bankers do not bring down their rates in tandem with the RBI's policies is a fact and needs to be admitted.Banks have ample scope to reduce their interest rates for borrowers by reducing their spread by atleast 0.50 percetage,reducing the NPAs by being very strict with recalcitrant borrowers,improving their profit margin by bringing in efficiency in asset liability management particularly cash management,operational levels by avoiding wastages,etc. They want to pass on the blame to RBI for high interest rate without bothering to improve their own working in different areas.Good that RBI Dy Governor has highlighted this. RBI can carry out a random scrutiny of interest rates charged to various classes of borrowwers and observe that small borrowers are subsidising larger borrowers.Big borrowers who make a hue and cry enjoy lower rate of interest and dictate.

from: Dr.T.V.Gopalakrishnan

Posted on: Sep 19, 2012 at 07:44 IST

 

(This is in response to Banks do not pass on the benefit to customers RBI DY Governor appeared in Businss Line)

Rbi is Right

There is nothing wrong in RBI's approach and what RBI has done in its policy review is the most appropriate step taking into consideration the persistent and spiralling inflation. The consumer price index is very high and is in double digits and RBI has the real concern on inflationary front.Even the reduction of 0.25% in CRR though not strictly warranted,the RBI has been proved to be a little diplomatic in taking this measure.This will add to the liquidity and banks can lend extra and make up partially the loss of interest which they have been crying about because of CRR. The risks on inflation continues and the Govt's recent measures will only add to inflation.Fiscal deficit needs to be contained by improving efficiency in tax administration,avoiding the unproductive and wasteful expenditures,improving the investment climate by bringinging in administrative reforms,removing corruption at all levels and bringing back the black money from abroad.The RBI has taken the right step.

from: Dr.T.V.Gopalakrishnan

(This is in response to the editorial Worth the Gamble appeared in Business line dated 18/09/12)

Inflation, Irritation,widen gap betwwe Govt, people

September 16, 2012:

Are inflation and irritation seen among people correlated?

This question has been lingering in my mind for quite some time and I have been analysing the cause for change in the behaviour among people and being arrogant. When one interacts with the small retailers such as vegetable and flower vendors, auto and taxi drivers, and all categories of people in the society particularly who belong to lower-income group and some service providers, it can be observed that the gentle behaviour and general courtesies they generally extend, have of late been missing and they get easily irritated and get provoked apparently without any convincing reasons.

The other day, when I engaged a taxi in Kochi to cover a distance of seven km under some compelling conditions, the demand of the driver was Rs 250 and that too as if he was obliging me as a special case. The minimum fare for taxis where meters are not installed, is Rs 250 and above. This service also comes not with a smile but with arrogance and irritation.

Similarly, auto drivers demand fare without bothering to adhere to the Government fixed rates (except perhaps in major cities such as Mumbai, Delhi etc.) and when one interacts with them, the often quoted reason is that the price levels have become unbearable and they find it extremely difficult even to survive, leave alone providing education to their children, medical assistance to self and family members.

Agitated mindset

They indeed have better knowledge of practical economics and they have a valid reason to be agitated in their thoughts and behaviour. They speak with conviction that practising honesty will not lead them anywhere in these days of spiralling inflation. Ethics and values have no meaning unless life is made somewhat comfortable is the message one can intelligently infer.

All round inflation is the irritant factor and the anger is naturally on the Government which they express very explicitly. It may not be out of context to quote here the observation made by PEW Research Center, in its recently released report on Global Aptitude Project that the Indian public’s confidence in their country’s direction and future economic growth has declined significantly compared with just a year back. It further states that among major economies, Indian pessimism stands out. Just 38 per cent of Indians are satisfied with the way things are going in the country.

The cost of essential items (like milk which costs anything between Rs 25 and 40 a litre, provisions such as rice costing between Rs 25 and 55, dal above Rs 100 a kg and oils above Rs 125 a litre, vegetables above Rs 40 a kg on an average, fruits are ruled out for many), has been on the increase year after year, and the ordinary people who include people below poverty line, lower and middle class people have no choice but to put up with the miseries of life.

Rise in costs

The all-round increase in costs because of service taxes for almost all items at 12 per cent, frequent increases in fuel prices, rise in expenditures on education, medical, transport and other items have made the people restless and this is visible in their expressions, behaviour and interactions among the people.

Is it good for the society and the economy? This is what the RBI and the Government should ponder over when they initiate policies on various fronts particularly inflation control, economic growth, fiscal deficit, and taxes. How long the Govt can explain and get away with the reasons for high inflation and cover up their inability to contain it at tolerable level?

No Affordability

Affordability of the people to avail of various services in the society without indulging in corruption has been the daunting question, the authorities should deeply and seriously consider before coming out with any policies.

Education, and owning housing are beyond the means of many who earn even Rs 10,000 a month is a reality and the Govt cannot ignore this any longer if they have a little concern for the masses.

The reasons for this bad state of affairs are not far to seek. The taxation policies pursued so far and now in vogue have widened the gap between the rich and the poor, encouraged formation of black money, increased corruption and made life miserable and unaffordable for common man.

Authorities have to bear in mind the fact that inflation disturbs family peace and harmony in the society. Happiness in life though not fully derived out of money, has been at heavy stake thanks to ever increasing inflation without corresponding increase in income.

Credit facilities have added to the miseries of people, is also to be reckoned while assessing the affordability of people to save and spend. Frustration and desperation remain with people basically for economic reasons caused by inflation.

The fiscal and monetary policies have to be well co-ordinated taking into consideration the demand and supply position of essential commodities, the average earnings of vast majority of people, the constraints involved in the production, procurement, storage, transportation and distribution of commodities etc.

Inflation should also factor in the cost of various services such as education, medical, insurance and others and the authorities have to be practical in understanding and arriving at policy decisions. Fiscal deficit, current account deficit, slow down in the growth of the economy, increase in international prices of commodities etc. can be valid reasons for inflation, but the ordinary people who are unfortunately in majority have no means or wherewithal to come to the rescue of the Govt in these matters as they have no earnings to take care of their own essential needs leave alone to augment the resources of the Govt.

Gap widens

Inflation squeezes them beyond imagination of the authorities is a fact to be kept in mind while deciding each and every policy. The RBI has its own limitations to provide employment and earnings of the masses and it is for the Govt to fine tune its policies to work effectively with the monetary policy.

Interest rate alone is not the cause for poor growth is an established fact and the Govt has to seriously consider other policies understanding the difficulties encountered by the masses and their mood in an irritatingly inflationary condition in the economy.

The ultimate result of persistent high level of inflation is widening the gap between the Govt and the people and the latter has no option but to blame the former for all their suffering. If inflation is brought under control, the mood of the people will definitely change for the better and the Govt and other stake holders in the economy will be the major beneficiaries. The confidence lost in the economy can be easily regained.

(The author is a Consultant in Mumbai. Views are personal).

(This article appeared in Business Line dated 17/09/12)

Keywords: inflation, Global Aptitude Project, RBI, auto drivers demand fare, Fiscal deficit, current account deficit, slow down in the growth of the economy, increase in international prices of commodities

Inflation and behaviour of people

The inflation has started affecting the behaviour of people in the society as his inability to cope with the pressures of living finds expression in their day to day interactions.The arrogance seen among the lower class people particularly among small vendors of essential items,auto and taxi drivers,servants etc is on account of high inflation and they are not able to make both ends meet leave alone other expenses like education,medical,travel expenses etc.The otherday I had to engage a taxi for a distance of 7 kms to catch a train around 11PM in the night in Kochi and the driver demanded Rs 250 ignoring the Govt rules and normal prudential practices citing the inflationary pressures and all round increases in prices of commodities and services.One cannot dare to think of going for a house and providing good education to children after meeting his minimum expenses for living.Milk,provisions,vegetrables etc are so costly and the non affordability of majority of the population irritates.

from: Dr.T.V.Gopalakrishnan

Posted on: Sep 11, 2012 at 15:58 IST in The Business Line  

Price Hike for Diesel

The expectation that the economy will improve despite all the problems of corruption, black money, has been completely shattered with the hike effected in Diesel Price and cap introduced on LPG cylinder per family. This Govt will ensure that aam admi will die of poverty, frustration and desperation.Already with the persistent inflation the common man is suffering and finding it extremely difficult to make both ends meet, leave alone giving education and medical assistance to family members. The insensitiveness of the Govt to the suffering of masses has reached ultimatum and it is not that easy to erase the wound in the hurts of the people caused by the indifference of the Govt. God save the people.( This comment appeared in Times of India dated 14/09/12 )

 

Service cost in Banks are high

The analysis is very good. The cost of services can be brought down considerably if the banks can improve the credit portfolio and the expenditures incurred on the ever increasing Non Performing Loans (NPL) are minimised if not avoided. NPLs cost banks heavily in the form of legal expenses, monitoring and supervision charges, maintenance of securities if any, provisions,loss of opportunity costs because of nonavailability of funds for recycling, write off of loans etc. In fact all these costs are unfortunately passed on to all stake holders of banks other than bad borrowers and nobody bothers about it. In this back ground, this sort of analysis will help the service takers to understand that they are subsidising the NPLs of banks and the borrowers enjoy at the cost of others who include the common tax payer who have not entered banks.

from: Dr.T.V.Gopalakrishnan

 

(This comment is in response to the article on 'Customers are paying more for Banking Service' in Business line dated 14/09/12)

Posted on: Sep 14, 2012 at 08:01 IST

Payment system

Payment System

Payment system should be improved in such a way that it should gradually lead to elimination of corruption, black money and high denomination notes of Rs 500 and 1000.Prepaid instruments should be made compulsory in high value transaction areas like bullion and other commodity markets, whole sale markets in vegetables and fruits, scrap dealings, etc. Trails of transactions should not be the immediate objective although it may be the end result,as it may discourage many to switch over to PPIs. The efficiency of the Payment System should be one of the yard sticks to assess the inherent strength of the economy. This will also make Financial and banking inclusion a reality over a period. The economy will definitely get a boost if payment system is improved with all safety,speed and accuracy. With improved IT system, the efficiency of the Payment system can easily be targeted and achieved. Many of the present ills of the economy, the Payment system will prove to be a solution.      

(This appeared in Business Line dated 13/09/12).

Retail investors and capital market

Attract retail investors to Capital Market

The editorial is well written pointing out how and where SEBI has failed to fix capital market. It is a pity to note that only 5 percent of household savings are in shares and debentures ( Business Standard dated 12/09/12). The efforts from SEBI if any to increase the percentage of household savings in shares and debentures have not borne fruit only reflects the lack of seriousness, initiative and involvement  on the part of SEBI in this direction. The reasons for poor savings in capital market are basically financial illiteracy among the people, failure of banks to bring well to do people under banking fold, the reluctance on the part of corporates to attract and retain retail investors despite SEBI’s instructions to have minimum of 25 % of share holding by retailers, lack of corporate governance to compensate the retail shareholders adequately with good dividend and bonus shares and persistent inflation at very high levels making it difficult to save in shares where the rate of return and capital appreciation are not attractive enough. The SEBI and the Banks should put some joint efforts to educate the households and attract them to market by facilitating opening of bank and demat accounts without any hassles. The Corporates also have to do their bit to attract retail investors as a matter of policy.

(This comment was in response to the Editorial).

STT Proposal

STT proposal

This refers to your editorial “Reality check on tax avoidance” (Business Line, September 4). The proposal to introduce General Anti Avoidance Rules in this year’s Budget has shaken the confidence of investors and affected the sentiments of the market. The Shome Committee’s suggestion to defer the implementation of GAAR brought a sigh of relief to the market. The move to do away with short term capital gains and enhance STT is a good suggestion. The STT can be different for purchase and sale transactions, for different volumes and for different securities. It can also be introduced for gold and silver transactions.

 

( This appeared in Business Line dated 5/09/12).

 

T.V.Gopalakrishnan

Committee on CRR- RBI governor

This joke from the Governor has conveyed sufficient message to Mr Chakraborty RBI Dy Governor and Mr Chaudhari SBI chief. The doubt is whether these two persons are cutting jokes on each other by referring to some important policy issues like CRR. If it is so, it is time for both to be in different places as the issue of CRR has created lot of controversies and even the Chamber of Commerce has commentd on it saying that CRR without interest should continue.The economy is having its own problems and the senior bankers should discuss something serious to prune down NPAs and pass on the benefits to other stake holders The issue of reducing interest is dependent on efficient management of assets and liabilities factoring therein the regulatory requirements. The CRR has been there since the establishment of the RBI and it cannot be withdrawn just like that when the banking system is not able to recognise the ills of the economy and adjust itself with the safe management of public money.
( This is in response to a report on CRR committee appeared in Business Line dated 4th Sep 2012)

from: Dr.T.V.Gopalakrishnan

Posted on: Sep 4, 2012 at 20:47 IST

Earn the salary and not take it

Mr Ananthakrishna is a dedicated banker and he deserves to be Congratulated for his election as a part time Non Executive Director of the bank.More than him the bank is the beneficiary in getting such persons on the Board.He had risen to the Chairman of Karnataka Bank from ranks and he earned the elevation out of his hard work,commitment and loyalty to the bank.He was with the bank when it was facing merger,if not liqiudation completely.He had toiled for the bank and given his best ignoring all persoanl comforts and luxuries for its growth and he ensured that the bank is one of the top performers among Private sector Banks.He is a banker worth emulating by the present Generation of bankers and banking officials.The present banking system which is becoming a borrower of funds than the deposit mobilser and then lender needs to learn a lot of banking from Mr Anantha Krishna who rightly said one has to earn the salary and not to take the salary.The depositing public need to be with banks.

from: Dr.T.V.Gopalakrishnan

(this comment published in Hindu Business Line is in response to a write up I earn the salary and not get it appeared in the Hindu Business line dated 31/08/12).

RBI's arrogance Is it warranted?

Chakrabarty frowns at SBI chief’s views on CRR phase-out

The regulator's toughness is welcome but the arroagnce is not tolerable. The Chief of SBI has every right to make his professional opinion in the interest of commercial banking,the regulator has to be tolerant to appreciate his stand and can have its own regualtory enforcement in a dignified and professional way.The comment from the Regualtor that SBI Chiuef can be elsewhere if he is not for CRR is not only in bad taste but also is something of a very high order not expected from a regulator which has earned its reputation and international recognition for its toughness and efficient regulatory and supervisory mechanism. This sort of comment will be a blot on the Reserve Bank which should carry its regualted institutions well with it in an admirable manner.

from: Dr.T.V.Gopalakrishnan

 ( This appeared in The Hindu-Business Line dated 28/08/12)

 

Appointment of Professionals as Directors in PSBs

	August 27 , 2012, 11:29 IST
The review of appointment Directors in PSBs is a right approach and it needs to be ensured that Directors are real professionals and are able to contribute to banks and economy's growth. Agrculture Small Scale Industries,Financial inclusion, menace of growing NPAs, human Resources are areas the banks need professional guidance and committed approach. The FM will do full justice if he is able to find persons of eminence in Banking, who are committed and fully involved in the efficient functioning of banks which has become very essential and the need of the hour to give a boost to the economy. (This comment in response to a news item FM to review appointment of Directors in PSB banks appeared in Business Standard dated 27/08/12)

NPA norms, CRR and SBI Chief

Apropos the report “SBI chief wants NPA rules tweaked” (August 24), banks have umpteen ways of camouflaging non-performing assets (NPAs) and what is finally disclosed is only a percentage of actual NPAs; the Reserve Bank of India (RBI) has absolutely no way of arriving at the correct position of NPAs. The norms for arriving at NPAs have been fixed and are based on international standards. It is for banks to discipline borrowers and educate them to adhere to regulatory requirements. NPAs have to be kept as low as possible and the loss on account of NPAs can’t be expected to be subsidised by any other stakeholder of the bank.

As far as the cash reserve ratio (CRR) is concerned, RBI has monetary responsibilities and it has to ensure that the macro-economic fundamentals are not only strong but also stable. The chief of India’s largest commercial bank should appreciate the role of RBI and its responsibility to ensure economic growth and price stability for which financial stability and banking stability is a must

This letter appeared in Business Standard dated 27/08/12..

Loss of Revenue because of Non functionig of the units

''If coal is not mined the loss is much more than what has been assessed by the CAG. The non- availability of coal  has been the major handicap for power industries and this has affected the economy very badly. After allocating the mines, if they have not functioned, the  situation is still worse and this should have  caught the attention of the Govt to set things right.This only indicates the Government's supervision in vital areas is missing and thererby causing severe damage to production and revenue gains. This calls for an other assessment of loss to the exchequer and the economy.''
 This is in response to FM's remark that if the units to whom coal mines have been allocated have not functioned where is the loss?

(This appeared in Times of India dated 24/08/12)

Investments in Housing and Gold on the increase

The investments in Gold and Real estate particularly housing have gone up because of1)high level of inflation and negative rate of return by way of interest2)Prevalence of heavy amount of black money due to wrong and ineffective taxation policies and3)lack of investment avenues due to policy paralysis from the Goverment side.The savings rate deregulation has not brought any changes in the interest rates offered by most of the banks and there are no alternative investment avenues other than Gold for the people to take care of ever increasing inflation.Those who can afford to saveie middle Income groups and rich people have better avenues of spending and investments and the opportunities are plenty in the economy as there are no checks or ceiling on the acquisition of properties.The Income tax return does not have column to indicate the very basic information on the assets held by the assessees.There is no way of tracking of investments in Gold or properties and people merrily avoid banks

from: Dr.T.V.Gopalakrishnan

Posted on: Aug 24, 2012 at 08:02 IST in response to the write up on RBI worries on rising housing and Gold prices appeared in The Hindu Business Line dated 24/08/12.

Coalgate Scam

These scandals are indications that theGovtFinances are mismanaged and there is no accountability.The authorities can get away with irresponsible way of handling public money and they are not very serious to improve the fiscal deficit and reduce the burden on common man is what is indicated with the revelation of this scandal under CAG report.When the masses suffer under high inflation and poverty this sort of looting of money cannot stand justice and prudence and for this,the CAG deserves appreciation for disclosing the casualness with which public finances are managed by people who are elected to take care of public welfare.There should be accountability and the loss should be recovered without much loss of time.The Fiscal deficit could have been considerably brought down if not eliminated completely had the losses from 2G and Coal allotment had been avoided.This sort of loss comes to light only through CAG audit and more of such audits should be done to prevent the loss of revenue.

from: Dr.T.V.Gopalakrishnan

 

This is in response to an editorial on the The true Cost of Coalgate in Business line dated 20/08/12.

Posted on: Aug 20, 2012 at 08:32 IST

A more customer-friendly approach to banking needed

Customer service in banks, especially at the branch level where the customer makes his first contact, leaves much to be desired.

Knowledge of banking and the importance of customer service are apparently missing and indifference and ignorance of employees rule the roost. The absence of training and transfer and build up of knowledge have become major casualty and this perhaps can also be a reason for ineffective transmission of various policiesof the Reserve Bank. Ignorance and lack of commitment of officials at the counters puts off customers in no time. This is felt more in new generation high-tech banks.

Several high level committees have been appointed to look into the grievances of customers and improve customer service in banks. But how far they have been able to improve the quality of service and inculcate in the bank officials, particularly at operational levels, the habit of customer service as a way of life and that they are duty bound to improve banks’ business, attract and retain customers with a zero tolerance level for complaints, remains to be seen.

Classification of customers

In practice, customer service depends on the formal or informal classification of customers by banks. Generally, customers are classified as celebrity customers, well- connected customers, high net worth customers, non-resident Indian customers and ordinary customers.

Celebrity customers get all services at their doorsteps just by a phone call and at any point of time. So is the case with well connected customers.. For high net worth customers banks have specialised branches. NRI customers normally are also well taken care of. It is the ordinary customers who are at the mercy of the staff.

Customer satisfaction and customer delight were the slogans progressively propagated by banks over a period, but completely given up these days. No such slogans are heard from any banks these days.

Customer disappointment and customer desperation are the experiences of many a customer and that they silently suffer and put up with such poor service is a fact revealed from contacts and informal surveys with friends, relatives and persons of average means like servants, taxi drivers, small vendors, shop keepers, co-travellers and pensioners.

Ordinary customers who seldom care to take up their problems with the higher ups or do not have the wherewithal to resort to the grievance mechanism of the banks are perhaps the most ignored lot by the authorities while assessing the quality of customer Service.

The grievance mechanism of banks is so designed that it takes time, energy and patience to register the complaint and the customer will think several times before opting for it.

As a result, there are less complaints in official records. Ordinary customers like pensioners, elderly people, and those who are illiterate and have no backing have learned to put up with poor service. It is not practical to resort to grievance mechanism for these customers. If indifference is the issue in public sector banks, ignorance is the problem in new generation banks.

The fact that financial and banking inclusion have not taken off the way the authorities wanted them to is on account of lack of involvement from bank officials and their lackadaisical approach to provide the very minimum customer service. For ordinary customers who just want to save some money either in SB or FD or recurring deposit account, is there any customer service in banks free of hassles?

KYC norm

The concept of Know Your Customer has unfortunately become very handy to keep away the customers instead of understanding the customers, helping them to improve their banking habits, provide them the dignity that they deserve.

The objective of KYC is to eliminate undesirable customers from the point of view of their possible indulgence in illegal and anti-social activities but unfortunately all prospective customers are suspected and kept away by citing some deficiencies in some documents which they provide to banks. The applicability of KYC should arise only after closely seeing the operations in the accounts but in reality, it has been observed as a rule rather than an exception to deny the prospective customers access to any banking service.

Of late, the banks also find comfort in purchasing bulk deposits and borrowing funds from institutions, including the Reserve Bank, to make lending and investment.

The strength of banks depends on mobilised deposits is an established truth. This requires human touch and humane approach. Potential for mobilisation is very huge in this country and people by tradition and habit are savings minded.

Banks have to change their business models and introduce savings products suitable to different categories of customers to attract, retain them and their savings.

Customers, whether small or big, are the main source of business and bank officials at all levels must realise this. Rules, regulations and supervision are only to have some system and order in the business and service to customers is the backbone of banking and its business.

This article appeared in The Hindu-Business Line dated 20th August 2012.

RISKS TO FINANCIAL STABILITY RISING

When the markets expand both nationally and internationally in terms of business, products and services, complications will arise and risks to stability are inevitable.

July 15, 2012:

The Financial Stability Report of the Reserve Bank released in June 2012 observes that the financial system remains robust though risks to stability have worsened due to global and domestic macroeconomic conditions.

Globally, the areas of concern include possibility of sovereign default and the need for substantial bank recapitalisation in the Euro Zone with escalated fears of contagion and recession. And, domestically, slowing growth, elevated inflation and rising fiscal and current account deficits are major concerns.

When the real sector is in trouble because of low savings, investment and growth, it is natural that it gets reflected in the financial sector. The report indicates that both investment and savings declined in 2010-11.

The country’s gross domestic savings rate declined from 33.8 per cent in 2009-10 to 32.3 per cent in 2010-11. While growth in gross capital formation rate declined from 36.6 per cent to 35.1 percent. GDP growth declined sharply from 8.4 per cent in 2010-11 to 6.5 per cent in 2011-12.

The high inflation, poor GDP growth, persistent fiscal deficit, thanks to food, fertiliser and fuel subsidies, sharp decline in the value of rupee (more than 20 per cent since August 2011), policy paralysis in crucial areas such as infrastructure development, FDI, and so on, resulted in international rating agencies downgrading the economy.

The general reluctance of banks and companies to reduce their profit margin despite the deteriorating economic situation have added to the risks to the financial system.

For banks, the deposit growth rate has fallen to around 14 per cent — the lowest in the last decade. Deregulation of savings bank (SB) rates has not made any impact in the mobilisation of deposits. Barring a few, banks have not effected any change in the SB account rates.

Of late, banks prefer to go in more for borrowed funds and wholesale short-term deposits. Their dependence on borrowed funds, including from the Reserve Bank, as a matter of routine has been on the increase. This shift in banks’ approach to business, perhaps due to operational convenience, if not curbed in time could lead to liquidity risks and asset-liability mismatches.

The increase in non-performing assets (NPAs) is another risk factor affecting banking stability. The quantum of restructured accounts has also increased sharply outpacing the growth of both credit and gross NPAs. Unless banks introduce an inbuilt mechanism to discipline borrowers, say, by professional rating and penalising errant borrowers, the problem of NPAs cannot be tackled. Good borrowers and other stakeholders will continue to bear the brunt and subsidise the bad borrowers.

Interconnectedness arises as banks find easy source of funds from insurance companies and mutual funds compared to raising of deposits. The insurance business is fast developing and they find banks as a safe investment avenue.

Interconnectedness brings depth to the market but adds risks which the regulators need to understand and mitigate. The SEBI, the IRDA and the RBI have a greater role to play by mutual co-operation and co-ordination, and not confrontation.

The risk to financial stability is a fact and the concern of the RBI is real. The volatility in various markets is only a reflection of the failure of the economy which is not in the hands of the RBI alone.

The fall in deposit rates, increase in non-performing loans, and the contagion risk due to interconnectedness between banks and other institutions have to be seen in the context of the weakening fundamentals of the economy.

A close observation of the financial system gives one the impression that the RBI is gradually losing its grip on the financial system, excluding, to some extent, on the banking system. Insurance companies, mutual funds, and joint stock companies which carry out various types of monetary transactions have implications on the capital, money and forex markets.

The interference of the Government in banking affairs has been on the increase, affecting the discipline among banks. Serving two masters at a time is difficult. The RBI has explicitly expressed its displeasure, and the central bank Governor has asked the Finance Ministry not to micro manage banks.

Financial stability is in the interest of the healthy growth of the economy and all the regulators have an equal responsibility in ensuring that the stability is not at risk at any point of time.

As and when the markets expand both nationally and internationally in terms of business, products and services, complications will arise and risks to stability are inevitable.

While a proactive approach of the regulators and the support of the Government can help to minimise the risk and attain the desired level of stability, growth of the real sector is the only solution to bring financial stability on an sustained basis.

(The author is a Mumbai-based consultant.)

(This article appeared in Hindu BusinessLine dated 16/07/12).

(Keywords: Financial Stability Report, Reserve Bank, financial system, global, domestic, macroeconomic conditions

Corruption in China a comparison with India

The article is a good exposure of China's corruption, but it should not be taken as a consolation for all dirty things that take place in India under the influence of politicians and bureaucrats. We should emulate only good examples and if India has achieved what Chinese has in the field of infrastructure and economy,a little bit of corruption here and there would be tolarable. We have only corruption and more of poverty and miserable living conditions for vast majority of people. SA Iyer should have highlighted these aspects also when he compared China's corruption with that of India.
(This is in response to the Article China Beats India,this time in Corruption appeared in Times of India dated 15/07/12)

NPA menace but nobody wants to try a practical solution

The npa menace continues haunt the banking system and it is becoming a threat to the Financial System's Stability. The NPAs disclosed, undisclosed (umpteen ways to camoflage NPAS)  and with those already under CDR mechanism and those in the pipeline estimated at Rs 2,68000 crores is a huge sum which neither the economy nor the banking system can bear and should bear. The loss direct and indirect to the exchequer,the banks,stake holders of banks other than bad borrowers, public ie the common man who bears the brunt ultimately the costs of NPAs through budgetary provisions to capitalise the loss making banks is something astronomical and none including the rating agencies has bothered to assess. This is something strange and questionable. When there is a direct solution to prevent formation of NPAs and to cover up the losses of NPAs available within the banks themselves involving the borrowers and banks, the need to make bear the losses by everybody other than the bad borrowers is something undigestable and not tolerable. The banks can rate the borrowers


professionately by adhering to some standards of monitoring and supervision and levy a penalty from  borrowers who happen to be performing below the prescribed standards. This approach will ensure the borrowers to be more vigilant and make perform better. The relatioship between banks and borrowers will improve and the responsibility of keeping the loan accounts healthy will augment automatically. This rating acn be a tool to  evaluate borrowers even by the SEBI and those who have dealings with bank customers in different ways. The Government can use these ratings for offering tax and other incentives. IPos of Corporates can be priced based on these ratings. Over a period, the banks will have huge fund mobilised from borrowers to cover NPAs and at the sametime the formation of NPAs will have come down considerably. Sibsidising bad borrowers by other stakeholders and general public who include the Common Man is not justifiable and does not sound reasonable.Will the authorities care to seriously consider the solution which has been approved, evaluated and recommended for a trial by veteran academicians. The solution is statistically researched and found to be worth attempting with excellent results. The Balance sheets of banks will get stronger over a period.

This comment is in response to an article appeared in Business World dated 13/07/2012) 

The problem of NPAs has been basically due to poor monitoring of accounts by bankers is a fact which unfortunately does notget the attention it deserves.The internal rating of loan accounts right from the sanction of loans to the closure of loan accounts has not been scientifically carried out by the bankers giving rise to their deterioration and turning into npas over a period. The contacts with borrowers are not very regular and the bad conduct of accounts gets noticed only when payments do not come as per the NPA classification norms. Borrowers also know the shortcomings of banks and they have their own tricks to satisfy the banks although they know very well that they have problems in business. In the case of borrowers having multiple accounts the borrowers and banks join hands to ensure that the accounts do not get classified as NPAs although there are symptoms of sickness. In the case of large accounts, the identification of problems is easy but banks seldom want to dissatisfy the borrower.


 Dr.T.V.Gopalakrishnan

(This comment appeared in Business Line dated 9/7/12) in response to an article appeared in Business Line dated 8/7/12)

Convert Gold into a productive asset

Itis time now to take a serious view on converting gold into financial assets and save the economy from the present crisis.The gold hoardings in India run into thousands of tonnes and part of these if converted into financial assets can rescue the economy and put it back into growth trajectory. The easiest way is to go in for a Gold Bank and mobilise the gold hoardings against issue of bonds carrying reasonable rate of interest.The author's suggestion to allow the banks to keep the CRR balances in gold is good and can be easily tried which will help release some funds for expansion of credit.There are umpteen ways to make use of the gold lying idle in the economy and it is for the Reserve Bank and the Govt to take steps for the productive use of gold.Imports can be fully banned for a temporary period and the gold available in the economy should be brought into the market.Issue of gold coins by banks by importing gold can be replaced by issue of gold coins by using domestic gold.

from: Dr.T.V.Gopalakrishnan

(This was published in response to an article Gold Management a Policy challenge appeared in Business line dated 6/07/12).

Posted on: Jul 6, 2012 at 08:42 IST

Coordination between the Central government and the Reserve Bank is the need of the hour

July 1, 2012:

The preamble of the Reserve Bank of India Act 1934 says ‘Whereas it is expedient to constitute a Reserve Bank of India to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.’

This gives an impression that the Reserve Bank has complete grip on the economy and the financial system where the Central Government, State governments, various markets, financial and other institutions and varieties of instruments and people interact and carry out transactions involving transformation of information and high technology. But, it has its own limitations and unless and until the Central Government gives full support and functional autonomy in letter and spirit, implementation of the preamble is practically rendered difficult.

Dominating influence

Further, the Reserve Bank alone cannot bring in the desired impact on the economy when the Central Government, which owns and controls the Reserve Bank by virtue of its owning the entire capital and having the powers to appoint its own well chosen officials on the Board of the Reserve Bank as Directors, has a dominating influence and can dictate its own terms and conditions not necessarily through force but giving signals through indications and expectations conveyed directly or indirectly.

The Bank has no choice but to act. Developing the economy is basically the responsibility of the Government and the Reserve Bank being the central bank of the country having the monopoly of issue of currency note has a joint responsibility with the Government to ensure that the value of the medium of exchange is stable both domestically and internationally and money is available in adequate quantity to develop the economy. This, in economic parlance, is called monetary stability, which if maintained well brings economic growth, price stability and financial stability.

Ups and downs

The growth of the economy and stability of the rupee have seen several ups and downs but all along the Government and the Reserve Bank have maintained perfect understanding and cooperation in strengthening the economy though differences of opinion have cropped up off and on.

But, of late, seeing the present state of affairs in the economy, one is not sure whether the relationship between the Reserve Bank and the Government continues to be cordial and the policies pursued by them in containing the problems of the economy are in tune with the thinking of each other.

The Government set up a Financial Stability Development Council with the Finance Minister as Chairman to oversee the financial regulators and counsel them to ensure financial stability despite the Reserve Bank’s reservations against such an arrangement. Then, the Government appointed an additional Director (for the first time in the history of the Reserve Bank) on the Board of Directors again perhaps to ensure that Government’s thinking gets prevailed and RBI yields to the pressures of the Government.

Over and above that the Finance Minister and the Chief Economic Advisor of the Government makes announcements as to what they expect from RBI just before the Reserve Bank gets ready to decide its monetary policy so that the Bank acts to their line of thinking.

The Finance Ministry also gives directions to banks as to what they should do with interest rates and credit expansion etc; although the banking system is regulated by the Reserve Bank and giving policy directives particularly on aspects of credit is the exclusive prerogative and privilege of the Reserve Bank.

Effectiveness of fiscal policy

The success of monetary policy is fully dependent on the effectiveness of fiscal policy pursued by the Central Government. The fiscal deficit, the economy is facing (at 5.1 per cent 2011-12), has been due to the inadequacies of the fiscal policy to contain food, fuel and fertilizer subsidies.

Further, the Government has failed to develop infrastructure, particularly in generating power, among other things that the economy demands to boost growth, make taxation policies to attract investment both from domestic and international markets, remove the supply constraints by concentrating in the agricultural production, storage and transportation, etc.

The result is continued persistence of inflation (at 7.7 per cent in 2011-12) without responding favourably to monetary policies. The import and export policies have their own short comings. While oil imports which are inevitable continue to rise, the gold imports do not fall drastically despite measures initiated to contain the same.

The increase in the consumption of both oil and gold the demand for which is inelastic to prices has widened the trade deficit. With the fall in inflows of foreign exchange, particularly under FDI and FII categories, the current account deficit is widening and is in the range of 4.1 per cent. Corruption and black money add miseries and the ease of doing business has been fast disappearing.

These are the areas where the Reserve Bank’s monetary policy cannot be of any help. Monetary policy can be said to be effective only if Reserve Bank gets the operational freedom to frame policies in the best interests of the economy which again depends upon the soundness of fiscal and other policies of the Central Government.

It is time for the Central Government to introspect and come out with policies in consultation with the Reserve Bank which has established itself as a very efficient central bank getting recognition for maintaining sound monetary and financial stability without yielding to the temptations or pressures of both domestic and international economic scenario.

It is to the credit of the Central Government that it does consult and coordinate with the Reserve Bank to frame and implement its fiscal policies.

(The author is a consultant. Views are personal)

Keywords: RBI, Central Govt, coordination, economic policy, Monetary policy
(This article appeared in Business Line Dated 2/7/2012)

Banks misguiding investors on NPAs

It is a fact that when system identifies NPAs,the figures are more as the system does not discriminate the borrowers and follows the guidelines of RBI.When the NPAs are identified manually,the human intervention helps some borrowers to project a better image and figures get camouflaged.Further there are umpteen ways to hide NPAs which the system may not follow unless the programmes are made that way.There is always a trade off between the Management and Auditors of banks and the NPAs get generally underestimated.When the system generates NPAs,it is bit difficult both for the Auditors and the Management to underestimate NPAs,though it is not fully ruled out.All these years,investors have been wrongly informed of the position of NPAs is a fact which the Deputy Governor also knows as he was all along a commercial Banker before he took over as DyGovernor.The auditors though are independent on paper,as long as they are being paid by the Banks they audit, they get influenced,to adjust NPAs.


 Dr.T.V.Gopalakrishnan
(This comment is in response to the article Banks misguide investos on NPAS in Business Line dated 28/06/12).

IT honchos and wage cut

IT companies honchos take a salary cut is no doubt good news to fool the public and not a scarifice to be worth emulating or taken note of. They are taking dividends in crores of rupees and they do not know what to do with the money they earn. No grouse or grudge on that. They have undergone the trouble and sacrificed a lot to bring up the companies and they deserve what they enjoy.But taking a pay cut in their salaries should not be projected as a great sacrifice they do is not easily digestible to justify deferment or wage cut to their employees. These honchos can sacrifice part of their dividend and take care of employees. Let not them fool the employees or the public as everybody knows that the entire dividend is tax free thanks to the unjustifiable taxation policies in this great economy where every transaction undertaken by common man is taxable under service tax and indirect tax and he is finding hard to make both ends meet because of persisting high inflation and what not? Let the honchos pl not make public the sacrifice they do as employees know how exploitation takes place in each and every company and public are taken for a ride by our so called democratic way of governance.

(this has been piblished in ET dated 27/06/12 in response to the news item IT honchos take a wage cut)

Elites are insensitive to fraud

Our elite are not only insensitive to fraud, they are insensitive to all accpted values and ethics. They can get away with anything with the backing of power and money.Bureaucrats are at their beck and call and they can buy all enforcement authorities.Let us appreciate that Raj Gupta has to go to jail for the insider trading and in US law is made applicable without going into the background of the person and backing of money and influence. Insider trading and malpractices right in the fixing of premium for IPOs and many others are very common in India although SEBI has intentions to stop them.Let us not make the mistake of comparing our enforcement standards with those obtaining abroad. Here the simple thumb rule is show me the person,we will show the rule and its enforceability. Connection and contacts matter here and this accounts for the innummerable scams, corruption and accummulation of black money. Nobody can find fault with our various laws which are free from flaws.

from: Dr.T.V.Gopalakrishnan

 

(This comment  in response to an article by B.S.Ragghavan appeared in BusinessLine dated 25/06/12)

 

Rupee depreciation who gains who loses

The depreciation affects the common man more than any body through inflationary pressures has not been highlighted. Importers and borrowers of money from abroa, students and tourists going abroad are also affected badly and of these some are avoidable. import of gold particularly by banks and the Govt for sale of gold coins can be completely curtailed for sometime. Tourism can be given a go bye for a temporary period. Like that unnecessary imports can be reduced or avoided totally. There are measures but willingness is that matters. The Govt has to take the initiative.
(This appeared in ET dated 23/06/12 in response to an Article Rupee depreciation who gains who loses)

Stupid Rules and smart Indians

''The article reads well . The fact remains that in India only smart people make the life miserable for people other than politicians and VIPs through their stupid rules. Stupidity is for commoners and VIPs escape.These sort of stupid rules are there everywhere in all Government institutions and even in Private organisations. The author can spend his entire life time by writing such matters in India which are in abundance.This is the secret of our Civil services efficiency. so long as people put up, let the tamasha go on is the simple rule followed.''

(This appeared in Times of India in response to an article in Times of India dated 23/06/ 12)