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