Canara Bank, Interest Rate and high cost of funds.

The bank blames RBI for not cutting down interest rates. It is absurd and amounts to passing on the buck to RBI for bank's own failure in managing the balance sheet.The admission that bank is not able to mobilise adequate deposits at low rate of interest is a major reason for high cost of funds. Further, keeping high level of NPAs is another reason for bank's failure to reduce the cost of funds. Depending on borrowed funds at high cost to do banking business and maintaining high NPAs without disciplining the willful defaulters will naturally add to the cost of funds and bank  cannot blame RBI for that. It is unfortunate that bank is taking shelter blaming  RBI   for its miserable failure in Asset Liability Management. The point that bank is paying more on some deposits than what it fetches on advances is a serious issue and these advances and deposits need to be investigated. Unless and until there are some under cuttings to favor the favored borrowers  such a thing cannot happen. The NIM of the bank is also not comparable with its peers only indicates that there is some serious deficiency some where in the management of assets and liabilities.The move of the bank to reduce bulk deposit is appreciable and it will automatically bring down the cost of deposits. The answers given by the Chairman  in his interview with Business line are not very convincing to justify its comparatively low NIM, high NPAs, high cost of deposits and over all position of the bank.Reserve Bank  being a monetary authority of the Country has a different agenda and the policies pursued by it also factor in the banks' profitability, cost of funds,  interest rates et al. The banks fail RBI in transmitting its monetary policies in letter and spirit is an issue to be seriously debated by the banks in India.

Dr.T.V.Gopalakrishnan

(This comment  in a slightly modified manner appeared in Business Line dated 1/7/13 in response to Canara Bank's CMD's remark that Interest Rates cannot be reduced as the cost of funds is very high )

Gas price Increase Is it okay?

The proposed gas price hike may not be convincing from a rationale angle when election is round the corner. Such a major policy decision having implications on the entire economy and its people could have been postponed by having an interim relief sort of arrangement as rightly brought out by the author. The force behind such a drastic step seems to please some of the Corporate giants under a quid pro quo which is intelligible to all in the helm of affairs but not to the ordinary masses who will bear the brunt when the pass through effect a comparatively new concept to pass on the cost to consumers is given.By doing this, the Government can pass through its present difficult situation and pass on the benefit to Corporates and perhaps see through the election with enough of monetary support.The intentions of the Government are clear and very many. Economists and professionals cannot have a correct perception of the policy perspectives.This announcement has pleased the market players as the Sensex rose sharply by 519 points in a very short time.This economy is run by a few industrialists,a handful of politicians,some market players for whom the theories of economics and nuances of Corporate Governance do not matter much, is known to a vast majority of the educated class. The justification for such a policy comes from the self interest as is the case in respect of all major policies. 

Dr.T.V.Gopalakrishnan

( This comment is in response to an article Gas price Increase is not Convincing that appeared in ET dated 28th June 2013.)

Present Road Conditions in Bangalore

The roads are very narrow and they are also not in good condition.There are no foot paths making it compulsory for pedestrians to walk on the road affecting the free flow of traffic. In some roads, the dividers are not properly laid and big stones are scattered here and there affecting the smooth flow of traffic and endangering the two wheelers. In many of the roads hawkers, vendors and all sorts of commercial activities including repair shops, tea shops, and small traders of all kinds occupy the roads and many who use these services park their vehicles in a haphazard manner. These are small impediments which can be easily taken care of if the traffic police act in collision with corporation authorities,put some efforts by having a mobile supervisory mechanism. This is not very expensive and irritants can be comfortably removed. Having an airport at Electronic city and linking the present airport with the electronic city are long range plans and very expensive projects. No doubt, they will definitely ease the movement of traffic, For the present, at least the Govt can concentrate on removing the present hurdles and make traffic flow a little faster. The signalling system in Bangalore needs much to be desired which causes delay in the flow of traffic and creates avoidable traffic jam. Will the authorities look into seriously? Better to have some lessons from major cities like Mumbai, Chennai etc.

Dr.T.V.Gopalakrishnan

Opportunity for India to perform

What ever happens in China, India should take it as an opportunity to put into optimum use of its natural and human resources to put up a brave face and take advantage of the international market where chinese had an upper hand. Our trade deficit with China may be a problem but India can overcome it by strengthening its traditional exports to China and also improving our exports to International markets where China has fallen short and is likely to get hit.Our economy has basic strength but political environment is always a bit of a problem and herein lies the solution. IT is our strength and the economy should think of exporting our IT skills to China to the optimum which will also be helpful to China to find some solace to its own problems.There are areas Where China is weak and India is strong and earlier our Govt identifies and initiates action, the better for our economy to come out of its own present pathetic condition. 

Dr.T.V.Gopalakrishnan

(This comment appeared in ET dated 25/6/13 in response to an Article on 'Troubled Panda could open Pandora's box for India').

Banks and KYC norms.

When husband and wife both senior citizens submit their proof of residence and passport copies with originals for verification, the State Bank that too in Mumbai insisted that there should be a proof to confirm that the couple are really husband and wife. He was not satisfied when indicated that the lady's passport carries her husband's details and both are personally before him. Is it kyc compliance or arrogance of the highest order and that too from a branch Head who is pretty senior and perhaps without any common sense or any sense to be a BM? An article on this has been published in Business Line in the month of April 2012. The  banks' authorities should act seriously when  such cases are reported and convince the bankers what is the rationale behind KYC norms. It has come to mean KEEP away Your Customers or kill Your Customers. or Know your Customers Contacts is the ground reality. 

Dr.T.V.Gopalakrishnan

The fate of rupee

Through this article the author has severely warned the Government for all its failures on the economic front. The inaction of the Government to bring out structural changes in the economy to give a boost to the economic growth has created this inevitable and perhaps avoidable  poor economic condition. The free fall of rupee was in the horizon for quite some time and being a resourcefully strong economy the Govt could have taken some harsh decisions on the economic reforms and implemented. On the contrary the budgets presented till 2013 and policies pursued only helped the economy to nose dive in all fronts starting in the flows of foreign exchange in both directions.The dangers on dependence on foreign funds and that too short term funds are well known and Indian Economy has sufficient internal resources to be tapped for developmental needs and as such the inflows of short term funds could have been either eliminated or discouraged. The dependence of Capital market on FIIS needs to be completely avoided giving a signal to the international market that the economy is strong enough to sustain its market and its liquidity conditions. The article has given a strong message to the authorities to ponder over the policies so far pursued and identify the commissions and omissions to set right at the earliest to avoid major catastrophe. 

Dr.T.V.Gopalakrishnan

( This comment appeared in ET is in response to an article on Expect things (read the rupee) to get worse before they get better in ET )

FM to meet bank Chiefs on 3rd July

It is heartening to note that the FM has finally realized that banks do not transmit the monetary policy in letter and spirit. Banks have failed to respond to the Reserve Bank's and the Government's call to reduce the lending rates to various categories of borrowers is a fact which has been brought out by many from the academic and finance circle.  Unfortunately  the Government ignored the call of the Reserve Bank and banks have been given directly and indirectly the freedom to act in their own way.. The banks' NIM has been on the very high side by any reckoning and the economic conditions of the country do not envisage to have a such high NIM at the cost of borrowers and other stake holders of banks. The deregulation of SB rate of interest has not made any impact and banks have merrily ignored deposit customers all along and found favor with borrowed funds to do banking business ignoring the domestic economic conditions which need maximum mobilization of domestic resources. The major banks particularly SBI have been harping on reduction of CRR to have access to funds kept in RBI ignoring the spirit behind the regulatory requirement and having obtained the reduction in CRR of 200 basis points and policy rate reduction of 130 basis points, they did not care to pass on the full benefits to the borrowers. The result is that even good  borrowers failed to repay the loans and go in for fresh investments causing the economy to suffer. The banks failed to cooperate with RBI is a fact and this has affected the economy in different ways. Savings in banks have come down, savings have been diverted to other assets, NPAs have increased,  productive loans have fallen down and all stakeholders who include the GOVT, the economy, the depositors and borrowers have suffered in the process. The FM will do well if he can make the bankers to work in the interest of the economy sacrificing a bit of their craze for profit and enhanced bonus and productivity rewards.

Dr.T.V.Gopalakrishnan

( This is in response to the news item Chidambaram may back borrowers in July3 meeting with bank Chiefs that appeared in Business Line dated 24/6/13) .

Infrastructure in Uttarakhand

Infrastructure was already in crumbled condition but the whole nation came to know about it after the Himalayan tragedy recently witnessed. Unfortunately many people were killed and many got stranded.Had the Government been a little sensitive and serious about the pathetic conditions of infrastructure in the area which is  prone to natural calamity  and had it carried out some strong repairs and well maintained the roads knowing the fragile conditions of the place, the impact of this tragedy could have been considerably minimised. Safety and welfare of the people unfortunately are the least priorities in the scheme of the Government plans.

Dr.T.V.Gopalakrishnan

( This comment appeared in Business line dated 24/3/13 in response to a report Infrastructure  crumbles in Uttarakhand)

RBIs monetary policy stance apt in current economic milieu

The RBI has done well in not overlooking the ground realities and going in for a reduction in policy rates to suit the sentiments of the market or expectations of some segments in the economy.

June 23, 2013:  

The Reserve Bank of India in its monetary policy review on June 17 kept the repo rate and the cash reserve ratio unchanged at 7.25 per cent and 4 per cent, respectively.

This policy stance has been based on the evolving growth-inflation dynamics and recent developments in the external sector.

Notwithstanding the favourable change in the Wholesale Price Index and the possibility of achieving a reduction in the current account deficit (CAD), thanks to curbs on gold imports, the Reserve Bank opted to keep the rates unchanged. This largely because of its concern about persisting retail inflation, particularly food inflation, and the continued depreciation of the rupee which could increase the CAD.

This is made clear in its guidance note, which states that the monetary policy stance will be determined by growth and inflation trajectories, and the balance of payments situation.

It is only a durable receding of inflation that will allow monetary policy to continue to address risks to growth, the note adds.

Inflation concern

The Reserve Bank’s worry on inflation expectations is justified as the Government has plans to increase gas and coal prices in the near term in addition to the price hikes now being effected in respect of oil on a monthly basis.

Further, the sharp depreciation of the rupee has made imports costlier and pricing of exportable items uncompetitive to take advantage of the depressed value of the rupee.

The overall cost of production and cost of funds in the economy have not been contained because of multiple reasons, such as cost overruns due to project delays caused by non-availability of adequate land, power and other essential infrastructure, and banks’ inability to provide need-based credit at reasonable rates. The mobilisation of deposits without compensating the depositors with a real rate of return has led to the diversion of savings to unproductive investments.

The monsoon has just begun and how far it can help boost agricultural production cannot be fully factored in at this stage in framing the monetary policy.

Food inflation is already high and the current politico-economic atmosphere is also not too conducive to expect highly favourable policy initiatives for both agriculture and industry.

If the monsoon is favourable, the risk of food inflation gets mitigated to some extent provided the storage, distribution and marketing of the products are taken care. This calls for strong administrative measures.

The external sector is also unpredictable as economic recovery, except to some extent in the US, is still in a fluid stage. The Federal Reserve move to taper off quantitative easing can drastically reduce the flow of funds to emerging economies, including India, and make exchange rate movements more volatile.

The trade deficit continues to increase and has touched a seven-month high of around $20 billion despite the series of measures introduced to contain gold imports. The inflows through FDI and FIIs depend on the policies of the Government which, as of now, are not very encouraging.

Expectation of inflows through other channels, such as commercial borrowings and remittances from abroad by offering attractive rates of interest, can only add to the inflation and cost of funds in the economy.

Prudence demands that the RBI does not overlook these ground realities and go in for a reduction in policy rates to suit the sentiments of the market or expectations of some segments in the economy. The RBI’s concerns can be well gauged from the policy statement, where it categorically observed that “while several measures have been taken to contain the current account deficit, there is an urgent need to be vigilant about the global uncertainty, the rapid shift in risk perceptions and its impact on capital flows.”

Capital flows

Both outflows and inflows of foreign capital, which have a direct bearing on inflation and exchange rate, have to be closely monitored both by the Government and the Reserve Bank in the overall interests of the economy, and this is what has been explicitly projected through this policy review.

By way of abundant caution, the Reserve Bank has clearly stated that the continuing weakness in manufacturing activity needs to be urgently reversed and the key to reinvigorating growth is accelerating investment by creating a conducive environment for private investment, improving project clearance and leveraging on the crowding in role of public investments.

The Reserve Bank has limited role in these areas and the initiative and action have to come from the Government.

The Reserve Bank’s approach is balanced in the present, fast-deteriorating economic situation and the policy highlights the challenges the economy faces both from the domestic and external fronts.

This calls for highly professional, meaningful and result-oriented solutions.

Earlier, the Government joins hands with the Reserve Bank and takes appropriate administrative and economic policy initiatives the faster the economy will get back on the growth track without inflationary pressures. The masses would be the beneficiary. 

Dr.T.V.Gopalakrishnan

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

(This article was published on June 23, 2013)

Keywords: Reserve Bank of India, monetary policy review, repo rate, Capital flows, inflation, FIIs, foreign investment inflows, rupee, dollar

The Economy and the words pass through

Pass through

The words pass through are perhaps of comparatively recent origin in Indian Economy and Finance.Recently when the proposal for Coal price increase was mooted by the FM he said this needs to be passed through . When the prices of imported oil have steeped then also the Govt used these words pass through meaning the price increase should be simply passed on to the consumer. How many such pass through s can be borne by the ultimate consumer is not made clear and how much capacity he has to bear the pass through is also not known. The inflation is so high because of several items of expenditure which include black money, corruption service tax, transaction tax, sales tax, transportation cost, storage and distribution cost and all these costs are given the pass through effect and because of  this, ordinary masses are passing through the most difficult time without knowing as to' how to and whom to' pass through the difficulties they encounter. Hope the economy will pass through the difficult phase and wisdom will dawn upon the policy makers to set right the wrongs and put back the economy back in safe and speedy growth track.

Dr.T.V.Gopalakrishnan

( This comment appeared in Business line dated 24/613).

FM to meet PSU banks Executives on 26th

Will the FM advise the banks to go in 1) for more mobilisation of deposits and increase the SB rate of interest to at least 5%. 2) for reduction of borrowed funds and reduce the cost of funds3) for reduction of NIM to less than 3%. 4) for reduction of NPAs other than those caused by economic slow down 5) for strict adherence of regulatory requirements in  banks own and in the interests of the economy. The tendency to question the regulatory requirements at the cost of the economy and banks' own discipline needs to be curbed.6) for making Financial Inclusion a reality and not to produce bogus statistics to please the authorities any more 7) for understanding  the spirit behind KYC norms to  avoid harassing of genuine customers particularly small deposit customers 8) for Improving the customer service at the counters and ensuring that staff having smiling face and good behaviour only are allowed to manage the counters.Arrogance of staff keep away the customers is a reality but not brought out by customers to keep their dignity and decency  9) for better ALM management as it leaves much to be desired to reduce the cost of funds and avoid periodical liquidity constraints.

Dr.T.V.Gopalakrishnan

 

ICICI Bank SB account and Incentives

ICICI Bank is always on the lead to do all wrong things and it is high time RBI does something to rein this bank with severe warning and followed by penalty in case it does not heed to the warning. ICICI bank will make Reserve Bank to learn new regulations if not properly watched and monitored.What the bank does is to reward  savings bank account holders  with some incentives in the form of some points for using SB accounts for various transactions and the points one earns get accumulated with some agency called Pay back which has links with many a merchant establishments.These establishments also add some points if shown pay Back Cards on the purchases made by the customers from them. This is only a trap to attract Customers to banks and merchant establishments and this encourages greedy pricing of products and take away any ethics if at all followed these days by many establishments.The fact remains that one cannot easily en cash any of the points earned in Pay back card as merchant establishments give all possible excuses and fail to honour what is promised under this scheme.What ever it is, RBI has to ensure that Banks do only banking business in a traditional manner ie;accepting deposits and lending of money.If any incentives are linked  other than efficient customer service to these normal banking transactions, there is something seriously wrong and need to be nipped in the bud itself. Otherwise RBI will have to face an embarrassing situation.The banks can better  offer higher rate of interest on SB accounts which stands at 4% even after deregulation of SB interest by the Reserve Bank a couple of years back The banks should innovate healthy practices, introduce products to attract savings and encourage constructive competition. 

Dr.T.V.Gopalakrishnan

This comment is in response to an article Now open Savings Bank accounts and earn reward points that appeared in ET dated 19/62013)

Is there a need for audit of RBI accounts by CAG?

The Government is understood to have appointed recently two auditors to examine the accounts of the Reserve Bank of India. Rather than give the central bank more autonomy, as is the case in most countries, the approach, of late, has been to take away even the limited functional/operational autonomy the RBI enjoys.

The setting up of the FSDC (Financial Stability and Development Council), nomination of two government officials to the RBI Central Board, the recommendations of the FSLRC (Financial Sector Legislative Reforms Commission) to have a super-regulator, and the way Government interferes in the Bank’s functioning directly/ indirectly only point towards making the RBI merely a government department with an independent office. 

Although the RBI Act 1934 has an enabling provision (Section 51) to have the accounts audited by special auditors of the Government, this has never been done as the RBI, since its inception, has been conducting its business meticulously and never given room for any sort of allegations to be levelled against it.

This is where the institution stands apart from the others, be they in government or the private sector.

Appreciated abroad

The RBI has earned the appreciation of developed nations for its professionalism and efficient way of discharging its duties without fear or favour. 

The RBI’s capital is fully owned by the Government and it does not raise any funds from any other source to carry out its functions.

Being a banker both to the Government and banks, it has access to their deposits and these funds are used only to assist them with some central banking functions that are closely linked to bettering the overall interests of the economy. 

It does not have any authority to sanction or execute commercial ventures. So, the scope for indulging in corrupt practices, as is observed in many institutions, is almost non-existent.

Income sources

It has powers to grant licences to commence banks, but the systems and procedures followed are elaborate, transparent and highly broad-based. 

The RBI earns its income basically by way of interest from the Government on latter’s borrowings. Also, it gets income from assets owned on behalf of the Government and from the forex reserves it maintains.

Earnings from domestic sources, much of them by way of interest receipts from banks on their borrowings, complemented by relatively small amounts from other sources — discount, exchange, commission, and so on — are the other revenue streams.

These incomes earned are transparent and as per well-laid-down procedures and practices.

It is up to the Government and banks to reduce their borrowings and manage their funds efficiently to minimise the interests payable to the RBI.

The apex bank has never been and can never be a commercial organisation by statute and it is not driven by profit considerations either by design or default.

Apart from establishment/non-establishment expenditure, the Reserve Bank’s main outgo is by way of agency charges/commission and printing costs that arise in the course of performing statutory functions.

Its functions also do not envisage framing policies with a view to making money for itself or for its staff.

Expenditure front

Perhaps, the only area where there is scope at all for CAG audit is on expenditure, which is often kept to a minimum, thanks to conservativeness the RBI has been practising since its inception.

The accounts of the RBI for the past 75 years bear this out.

The Bank runs its show with minimum staff, who have been trained to be so economical that even genuine needs are often overlooked. The position may have changed a little post liberalisation and financial sector reforms,  with the infrastructure and operational environment getting more modernised.

Even so, the pay and perks of the staff may not comparable favourably with those in other central banks and large companies in India.

Also, many of the retired staff are drawing pittance by way of pension, which badly needs to be brought on par with that of Central Government staff.

In these circumstances, it is surprising that there is a vehement call to bring the RBI under CAG audit. That the RBI is corruption-free is a well-acknowledged.

Therefore, CAG audit without any strong and justifiable reason will only add to the expenditure of the exchequer.

The RBI is perhaps the only institution which is self-disciplined and self-audited, giving no scope for CAG audit in terms of coverage, content and scope and having all possible checks and balances on ‘income and expenditure’.

Moreover, the accounts are extensively screened by the statutory auditors appointed in terms of RBI Act 1934, and are made available to the Government for presentation in Parliament.

The Government would, therefore, benefit more if it utilises the CAG’s expertise elsewhere.

(The author is a Bangalore-based financial consultant. The views expressed are personal.)

(This article was published on June 16, 2013)

Keywords: CAG audit, RBI accounts, Licences, private banks, expenditure

RBI and Regulation of systemic Risk

Dr K P Krishnan in an earlier  article 'who would audit RBI' in Economic Times dated 6^thJune 2013, has strongly suggested auditing of RBI accounts by CAG and now he observes RBI Governor is wrong in regulating risk. He says the current RBI Act does not envisage the Central Bank doing systemic regulation. This observation does not carry any conviction and is only intended to perhaps widen and intensify the difference of opinion between the Govt and RBI on various issues. As long as RBI is entrusted with the responsibility of regulating the financial system where the banking system accounts for a major and very significant share, the systemic risk because of inter linkages of institutions, markets with different products of various institutions, is inevitable and is a serious concern of RBI. Prudence demands that RBI cannot and should not escape from the responsibility of ensuring financial stability and soundness. RBI as an independent monetary authority by statute is enjoined upon  building  the confidence of the stakeholders in the whole system of money and finance in the overall interests of the economy. Whether the RBI Act explicitly provides for regulation of systemic risk or not RBI cannot escape from this responsibility as the preamble of the Act necessitates that the Reserve Bank should regulate the issue of bank notes and the 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. In this background how risk regulation and that too systemic risk regulation can be overlooked by the Reserve Bank is something very strange, surprising and incomprehensible. Further RBI has been exclusively entrusted with the regulation of banks and financial Institutions in terms of BR Act 1949 and all these years RBI has managed to keep the financial system healthy, stable and sound earning for itself the recognition and adulation as the well run Central Bank from all over the world and Institutions of repute. To find fault with RBI and to take away its role and responsibility under some silly excuses only smacks of  intolerance of RBI’s competence as a professionally run institution without any allegations or serious charges of corruption and the hunger for more power to dominate the financial system to satisfy its ulterior motives on the part of some vested interest.

Dr.T.V.Gopalakrishnan

( This comment is in response to an article Why the RBI Governor D Subbarao is wrong on regulating risk that appeared in ET dated 12/06/13)

The rupee responses Why?

The editorial captures well all the issues causing depreciation of the rupee unabated.The country has limited control on external factors such as US approach to withdraw liquidity as a stance of its monetary policy,but definitely the Govt can have solid control to drive the domestic policies to suit its requirements and minimise the downfall of the rupee. The Govt has failed to take appropriate and timely measures to contain the import bill by containing the demand for gold when it was reaching the peak, improving the supply of coal by augmenting the production of quality coal domestically, creating an atmosphere to attract flow of funds from abroad by its taxation and ease of doing business through better administration and governance, controlling inflation and inflationary expectations by improving productivity, procurement,storage, distribution and marketing of food products in particular.The failure of the Government in containing Corruption and black money has added to the woes of the economy and the greed has overtaken the market in such a way that make money as much as possible at the quickest time through unquestioned and aggressive pricing in all areas. This is the philosophy practised shamelessly by all in all sensitive markets.The adverse impact of all round service tax without any rationale has added to the cost of everything in the economy and everything revolves around high cost and high inflation without any escape route.Trading in currency has also been adding to the problem as if ours is an advanced economy to accommodate that.Time to have an overall review of economic, monetary and administrative policies and fix the issues without further loss of time. First Signalling followed by concrete action is the need of the hour.

 Dr.T.V.Gopalakrishnan 

(This comment appeared in Business standard in response to the editorial Rupee responses on June 11,2013.)

Falling Rupee

The editorial captures well all the issues causing depreciation of the rupee unabated.The country has limited control on external factors such as US approach to withdraw liquidity as a stance of its monetary policy,but definitely the Govt can have solid control to drive the domestic policies to suit its requirements and minimise the downfall of the rupee. The Govt  has failed to  take appropriate and timely measures to contain the import bill by containing the demand for gold when it was reaching the peak, improving the supply of coal by augmenting the production of quality coal domestically, creating an atmosphere to attract flow of funds from abroad by its taxation and ease of doing business through better administration and governance, controlling inflation and inflationary expectations by improving productivity, procurement,storage, distribution and marketing of food products in particular.The failure of the Government in containing Corruption and black money has added to the woes of the economy and the greed has overtaken the market in such a way that make money as much as possible at the quickest time through unquestioned and aggressive pricing in all areas is the philosophy practised shamelessly.The adverse impact of all round service tax without any rationale has added to the cost of everything in the economy and everything revolves around high cost and high inflation without any escape route.Trading in currency has also been adding to the problem as if ours is an advanced economy to accommodate that.Time to have an overall review of economic, monetary and administrative policies and fix the issues without further loss of time. First Signalling followed by concrete action is the need of the hour.

Dr.T.V.Gopalakrishnan
(This comment is in response to the editorial in Business Standard dated 11/6/13).   

Government to blame

The Government is solely responsible for the mad craze for gold in India (Business Line, June 8) and now the demand is price inelastic. Government’s failure to contain inflation, corruption and black money have diverted people’s attention to gold.

Greed has overtaken the market and pricing of products has no relationship to demand and supply.

Corruption is rampant even in villages and small suburbs, and irrespective of status and educational background.

People make piles of money in blackand a large segment goes towards gold consumption.

Further, scams and frauds, the steep fall of the stock market, the absence of financial instruments with safety features and positive returns covering inflation for the public to save have made people invest in gold.

The Government should curb the demand before it reaches dangerous levels.

  Dr.T.V.Gopalakrishnan 

(This letter appeared in Business line dated 10/6/13) 

Foodgrains stock, starvation and fate of the economy

The article is very informative and a very good food for thought and serious action. The economy suffers in several ways for lack of imaginative thinking, planning and result oriented action. The food credit estimated at between Rs 70000 and Rs90000 crores is nothing but a Non performing Asset of highest order which the economy cannot and should not bear. If these NPAs are added to the other NPAs of  banks the amount would be staggering and  it would not  be an exaggeration to say that the amount would be sufficient to wipe out the entire fiscal deficit. Further, if these npas are made to perform, the economy will shine and the ills of the economy will vanish. The waste of food grains lying accumulated is neither justifiable nor tolerable when many a people in the country are starving. The Govt should either have an efficient distribution system without leakage and corruption  or export the food grains  at the optimum price possible and introduce cash transfer or Coupon system to the poorest of the poor. Govt can involve some social workers or NGOs or SHGs or Banking Correspondents to carry out the distribution of grains or cash with proper checks and balances to eliminate corruption. The country has the best of talents and good human beings who care for the welfare of the poor and the economy. Leaving every thing  only to bureaucrats and politicians will only add  to the woes of the economy and the problems of plenty of food grains vs starvation, fiscal deficit, current account deficit, staggering NPAs with adverse consequences will remain for ever for politicians to exploit the situation in their own way.

Dr.T.V.Gopalakrishnan

(This is in response to an article How to reduce our rotting mountains of grain appeared in ET and Times of India dated 9/6/11)

  

Is the demand for gold insatiable?

This refers to your edit ‘Golden tangle (Business Standard dated 8/6/13)...The Govt is solely responsible for the mad craze for gold in India and now the demand is price inelastic. The reasons can be found in Govt's wrong policies and inaction in respect of vital economic policies badly needed by the economy. Failure of the Govt to contain inflation, corruption and black money is the major cause for diverting attention of the people to gold. Greed has overtaken the market and pricing of products has no relationship to demand and supply. Gold only can be the safest hedge in the present state of the economy is more than proved. Corruption is beyond anybody’s imagination and it is rampant even in villages and small suburbs and irrespective of one’s status and educational background among people  many of whom make hell of money in black and a large segment of it is diverted towards gold consumption. Added to this Govt's policies to import gold to satisfy the gold bullion and jewellery merchants and sell gold through post offices and banks have made Gold a most possessive item at any cost by those who have surplus. Further, the scams and frauds  now and then getting reported in the financial system, the steep fall of stock market, absence of financial instruments with safety features and positive returns covering inflation for public to save have attracted people to invest in Gold. Along with the solution offered through your editorial, the Govt should identify the blocks and people from where the demand is insatiable to curb the demand.As long as Corruption and black money persist in the economy the demand for gold cannot be contained so easily.

Dr.T.V.Gopalakrishnan

Govt and Gold

The Govt is solely responsible for the mad craze for gold in India.The reasons can be found in Govt's wrong policies and inaction in respect of vital economic policies badly needed by the economy. Failure of the Govt to contain inflation and black money is the major cause for diverting attention of the people to gold.Added to this Govt's policies to import gold to satisfy the gold bullion and jewellery merchants and sell gold through post offices and banks have made Gold a most possessive item at any cost by those who have surplus. Further, the scams and frauds  now and then getting reported in the financial system, the steep fall of stock market, absence of financial instruments with safety features and positive returns covering inflation for public to save have attracted people to invest in Gold.The Govt is to be squarely blamed for the mess that it created in gold market.

Dr.T.V.Gopalakrishnan

( This comment is in response to the article poke me: Govt is responsible for India's craze for gold that appeared in ET dated 5/6/13)

RBI and CAG audit

The argument to bring RBI under the fold of CAG audit does not sound logical and is uncalled for unless the intention is to take away even the remaining independence of RBI. RBI does not raise resources from any source as its incomes are basically by way of interest from Govt on the securities.The incomes of RBI are from assets owned on behalf of the Govt and from the Forex reserves maintained and invested. Unlike other Statutory Regulatory agencies RBI has no way of raising resources from the institutions or public except the CRR from banks which are essential as a monetary tool to influence money supply and discipline banks.The RBI earns interest on lending to Govt and banks which are transparent and as per well laid down procedures and practices. RBI has never been a commercial organisation and it is not driven by profit considerations. Its functions also do not envisage to frame policies to make money for itself and by its staff in any manner. The only area perhaps there is scope  at all for audit by CAG is on expenditure side which is kept to the barest minimum because of Conservativeness the RBI has been pursuing since its inception.Here also, RBI has well laid down system and procedures and they are all transparent.RBI runs its show with minimum staff and efforts are continuously on to reduce the staff further Expenditure is seen as an allergy and staff have been well trained to be so economical that even genuine needs are often overlooked..Even the pay and perks of staff are not comparable and very favourable when compared with many Central banks of the world and large Corporates in India. The pension payable is not even on par with  the Central govt employees and many are drawing a pittance making it difficult to make both ends meet. Less said the better about the conditions of pensioners because of miserly attitude of RBI towards pensioners.In these circumstances, it is surprising to observe that on what basis the idea of bringing RBI under CAG audit has emerged.RBI is perhaps the only institution which is self disciplined, self audited and having all possible checks and balances on expenditures.Corruption is unknown to RBItes is a well acknowledged truth.

 Dr.T.V.Gopalakrishnan

 (This comment  in a modified form appeared in response to the article Who would audit RBI? in ET dated 6/6/13)

RBI and Import of gold

What the law enforcing authorities are doing?One cannot and should not be afraid of initiating some public policies intended for the common good of the people, economy and the country just because some anti social elements and black money holders will  ignore violate and indulge in smuggling and nullify the effect of such policies. No right thinking persons can encourage such thoughts.RBI is right and a very straight forward institution and its thinking is always  on the right lines as far as public good and economy's interests are concerned.  (This comment is in response to an  article Restriction on import of gold will  increase smuggling appeared in ET dated 6/6/13)

Approach to Financial Inclusion Worth emulating in India

  It is interesting to read that"Union Bank in San Francisco has created a new bank account designed for the underbanked.The bank on Tuesday introduced the Union Bank Access Account. The account, designed for customers with limited means who may not qualify for a traditional account, will be available in California, Oregon and Washington.' This is a very thoughtful move and it can work wonders to bring under banking fold the less privileged and people of small means. It meets two objectives simultaneously ie to inculcate banking habit among the people and mobilise savings though in a small way which can be creatively deployed. The initiative taken by the Union Bank in California is worth emulating by developing and underdeveloped countries where they are struggling to make Financial Inclusion a reality. Congratulations to this food for thought move initiated by the Bank.

Posted by gopalakrishnan.tv | Wednesday, June 05 2013 at 11:09PM ET

(This comment appeared  slightly in a modified form in American Banker on June 5,2013 in response to an article  Union Bank in California Debuts Under banked Account.)

India and China Trade Deficit

Well written article. But In India as on today's economic conditions, there is nothing concrete to export except perhaps diffidence in ease of doing business because of corruption and lack of Governance Standard. The economy is losing its edge over engineering, agricultural and IT because of lack of economic reforms and political stability. The country's ability to perform well has taken a back seat and and It is not clear as of now when the engine of growth will be put back on the track. Our talents and initiatives are being wasted in fighting scam, corruption and terrorism and the need to produce more in industrial and agricultural sector has been ignored or forgotten. It is a sad story and hope we will learn some good lessons from China.
Dr.T.V.Gopalakrishnan
( This comment in response to SA Iyer's article in TOI dated 2/6/13 on Trade Deficit with China Excellent )

Banks Liquidity and Govt Deposits With RBI

Liquidity in banking system basically arises out of deposits, recycling of funds refunded by the borrowers and borrowings from the market which include REPO loans taken under LAF. The author is very right in saying that LAF has become more or less a refinance facility as banks depend on these funds to meet  not only their liquidity shortage but also to run their business. The problem of liquidity shortage in banks is caused due to the shift in the form of business in banks. Deposit mobilization which was an essence of banking has been taking a back seat and the rate of growth of deposits has been on the decline particularly when the interest portion is adjusted from the growth. Fresh deposits mobilization and that too in the form of retail deposits has been adversely affected thanks to persisting inflation, preference for gold and other alternative modes of savins, wrong understanding of KYC norms, customer service devoid of personal touch.etc The ever increasing menace of NPAs and restructuring of loans have  been affecting the recycling of funds,  The  increasing trend in term loans as compared to cash credit, bill limits and overdrafts hitherto followed by banks has also affected the liquidity of banks to a great extent.  The author’s suggestion to auction the Govt deposits lying with the RBI can have a favourable impact on liquidity, but it will be only a temporary phenomenon. The banks have to change their present business model  from borrowings  and lendings to mobilizing  funds as deposits  and lending. NPA accumulation needs to be drastically brought down and the concept of restructuing of loans should be reduced to the bearest minimum by having an exit option of bad loans.  

Dr.T.V.Gopalakrishnan

(This comment is in response to an article in Business Standard on RBI should define liquidity by  A Seshan on 1/6/13)