RBI in a catch 22 Situation

RBI is in a catch 22 situation. The Government wants RBI to ease the rate and this has been well argued by the Economic Adviser, Ministry of Finance, and economists attached to various Financial Institutions. The market and industrialists always cry for lower rates although the rate of interest has an insignificant share to contribute growth . The fundamentals do not really support for a reduction in rate ,but the market forces indirectly force the RBI to favour a rate cut to give psychological boost to the present political and economic environment . The deposits and credit growth have not been picking up and the reasons are not due to the policy rates of RBI are not being understood or analysed by the group who fight for a rate cut. The real rate of Interest and real rate of growth are at risks because of uncertainties of the macro economic factors and other variables like international economic scenario which need to be factored into by the RBI before deciding a rate cut.

Dr.T.V.Gopalakrishnan

(This comment appeared in Business line dated 30/5/15)

Performance review norms by Banks' boards

This is a good approach.  It however presupposes that the Banks' Boards  conist of professionals to have an effective and meaningful review of the Banks'business strategy, financial reports and their integrity, risk, compliance, customer protection, financial inclusion and human resources. This depends on the selection of Banks' boards of directors which need to be based on domain knowledge, professional competence, proven integrity and well established performance records. Will RBI ensure this? As it is,even PSBs do not have very  competent Boards is a fact proved in their performance records with ever increasing NPAs and dwindling profits. 

Dr.T.V.Gopalakrishnan

( This comment is given to BS)

Bad Loans affect the economy more than the Banks

More than the banks, the bad loans affect the Economy very badly is being missed out by the authorities. The recurring loss in the form of loss of production and consequential loss of revenue and employment are direct results of bad loans. Besides, the erosion of values that the banks can be easily looted through the bad loans route has been well encashed by unscrupulous borrowers.The  recurring loss to the economy in different ways is a reality and this gets ignored. Earlier the NPA problem is fixed professionally, it is better for the economy, banks and all stake holders of banks and the economy. The major beneficiary would be the Government for having fixed the vexus issue once for all professionally ethically and commercially. 

Dr.T.V.Gopalakrishnan

(This comment is given to BS )

Involve people to fix Black Money.

The prevention of black money generation requires only small steps with very effective monitoring, follow up and supervision involving Information Technology and social auditing by people of eminence. The corrupt practices and irregularities widely practiced all around the trade and commerce need to be systematically fixed and it does not require super intelligence. The readiness of the Government is all that requires to fix black money generation.Governance is simply missing and malpractices are liberally encouraged and widely practiced with the blessings of the authorities through out the country is what is to be understood, recognised and fixed. Involve people who can make the Government to reach the destination. There are people who aspire welfare for all, maintain honesty, integrity and sincerity and really support what Mr Modi preaches all along.

T.V.Gopalakrishnan

Make the Gold Monetisation schme liquid and dependable.

Tax exemptions proposed would definitely make the scheme attractive and the rate of interest should also be made attractive for those who deposit gold upto 200 grams or so. The scheme should be made flexible for comparatively poorer sections of the society so that they can deposit and withdraw gold as they wish. Poorer sections invest in gold as an insurance against some risks they envisage and that should be protected. An insurance linked deposit of gold can be worked out involving insurance companies to give protection to those who part with gold of less than 500 grams.The period of deposit of gold should be between three years and ten years in order to enjoy the full benefit of the monetisation scheme and find resources for long term infrastructure projects. If possible, the deposit certificates involving more than a lakh of Rupees should be tradable in  capital market. This will make the scheme liquid and at the same time dependable. 

Dr.T.V.Gopalakrishnan    

Prevent formation of bad assets by disciplining banks and borrowers

This refers to your editorial Bad assets blues (Business standard dated 18/4/2015).This problem of banks has been there since evolution of banking and it is all the more in our Public sector banks due to lack of professionalism in the management of credit portfolio among other things. Mismanagement of the economy and inefficient management of the banks reflect in the balance sheets of both the economy and the banks and all the stakeholders except perhaps the bad borrowers suffer in different ways is the ground reality. Volumes have been written and veterans have made all possible comments on the ill effects of the bad loans on the economy and the banks but unfortunately no tangible solution has been attempted to prevent the formation of non performing assets in a professional manner identifying the basic reasons and arriving at some workable solution to improve the banks balance sheets without in anyway affecting the borrowers interests and the needs of the economy. Infrastructure finance has been a major handicap and for this the solution has to be found in deepening the  bond markets to raise long term funds and the banks need to be relieved of funding long term projects with their short term deposits. This may help to a great extent in minimizing the bad loans generation but the ultimate solution to contain formation of NPAs lies in disciplining both the banks and the borrowers for their lack of professionalism in running their businesses and arriving at a solution to prevent formation of bad loans and liquidate such bad loans in case of their inevitability by funds raised from borrowers and banks for their laxity in the conduct of loan portfolios.  

Dr.T.V.Gopalakrishnan     

Are the autorities really worried about NPAs in banks?

When there are no serious intentions to discipline the bad borrowers and the banks through a self correcing mechanism to prevent formation of NPAs and liquidate the bad assets without being cross subsidised by depositors and other stake holders, the NPAs would naturally increase and the loot would be shared by many. The problem of NPAs needs to be tackled professionally without fear or favour using the power of technology and introducing a self correcting mechanism by imposing a penalty based on the conduct of loan accounts right from day one of releasing the credit.Will the authorities show some inclination?

Dr.T.V.Gopalakrishnan