Do not make RBI the Scapegoat

This approach to demand RBI Rs 43000 crores towards Bank recapitalisation as NPAs of banks swelled under RBI watch shows the arrogance of the Govt and admission of its own failure to make the banks  perform as there was no conducive economic environment for any one to perform in the economy as revealed in the continuous falling in GDP over the past few quarters.RBI no doubt failed to successfully implement the demonetisation scheme and also failed to make the banks accountable for the accumulation of  bad loans perhaps by cautioning appropriately the Govt for its undue interference in RBI's own functioning and that of the Public sector banks and taking away the independence and professionalism of both RBI and PSBs. Instead of finding fault with the Finance Ministry and the bureaucrats for their failure in creating a conducive economic environment with their own economic and administrative policies, running after RBI to pass on the surpluses ignoring the Central Banks'own prudential policies and historic approach so far pursued keeping the interest of the macro economy and in safeguarding the value of the rupee amidst the dynamics seen in and around the world only shows the Govt in poor light. RBI has always been a strong supporter of the Government and has to be so statutorily as per its set up but it has to be allowed its own independence and freedom to deliver in the interests of the economy and the Government in power. 

The Governments' approach seems to be augmenting revenue by all means and what for these revenues are meant is not understood. The prices of gas, petrol and diesel and almost all commodities have increased and the tax policies have not given any sort of relief to people including pensioners and  senior citizens even without any pension benefits. 

Dr T V Gopalakrishnan

(This commend  was given in response to an article Bank Recapitalisation:Government may turn to RBI for Rs 43000 crore as bad loans swelled under their watch  that appeared in FE dated 2/11/17)

A lasting solution to arrest and prevent the formation of NPAs in banks.Better late than never.

The banks in general and PSBs in particular are in the business of looting depositors and tax payers money in a systematic manner and the politicians and,bureaucrats become very handy to enable the loot. Even Mr Atal Bihari Vajpayee the Former Prime Minister has openly stated in the late 1990s that NPAs are nothing but  a loot This is known to all but as long as the depositors,tax payers among others  can bear the burden silently, why the loot cannot go on is the approach  pursued all these years and the periodical bail out of banks are resorted to when the situation is going beyond control and the cracks are felt in the economic growth The solution lies in disciplining the banks' management and the borrowers and for that the Regulator has to be totally independent and made efficient to deal with them unbiasedly without any political and Government interference A lasting solution to contain the formation of NPAs was suggested in  the year 2004 in a book Management of NPAs in PSBs published by Indian Institute of Banking and Finance but it was conveniently ignored   despite the fact that the book was based on  Ph d thesis and carried a foreword from none other than the former RBI Governor and former Chairman Prime Ministers Economic Advisory Council Dr C Rangarajan. Unfortunately, intentionally or unintentionally  the suggestion was not even considered to be debated openly, leave alone  considered for implementation on a trial basis  although it received lots of appreciation and was recommended for fair trial by the examiners of the thesis in public interest.The solution was very simple and pragmatic and had it been implemented then, the NPA accumulation could have been greatly contained and managed without resorting to bail out of banks with tax payers money.The book offered a solution to discipline the borrowers and the banks in their management of loans taking into consideration the ups and downs in the economy due to genuine reasons of slow down if any based on political economic social and technological changes beyond the control of banks and borrowers.The other stakeholders of the economy Viz the Government, shareholders of banks, the investors and the public at large could have been the major beneficiaries and the banking system would have become strong and the twin balance sheet problem of banks  and corporates would not have been an issue as of today. It could have been a win win situation for all.

 This book it seems is available even now in amazon .com

Dr T V Gopalakrishnan

(This comment in a modified manner has appeared in Indian Express dated 31/10/2017 against the article Recapitalisation of banks)

    

 Camouflaging NPAs and inflating the profits is very common in all banks and this was the reason  the Global Trust Bank had to close down and had to be merged with Oriental Bank of commerce in the year 2004. The banks auditors and management are hand in glove with each other in window dressing of banks balance sheets and this seldom gets detected or if get noticed get ignored often. The stakeholders have absolutely no clue of what happens and RBI's findings seldom get reported or made transparent. What has happened in Axis Bank may be true for almost all the banks and prudence demands that all banks' financial position with RBI's divergence if any should be made transparent for the benefit of all stakeholders. Besides, how the banks fix lending rates to various corporate borrowers , retail borrowers and to what extent the policy rates have been actually transmitted into the final lending rates of banks also should be made transparent for the benefit of investors. To what  extent the lending rates if NPAs are maintained at a reasonable level can be reduced also should be indicated in banks balance sheets as and when published.

        

      Dr T V Gopalakrishnan

      ( This comment was given in Money Life against the article Axis Bank tumbles over 9% as asset quality worsens dated 18/10/2017).    

Make banks the performing assets.

The best and workable plan to produce results and to put back  the economy  on the revival track is to free the  public sector banks from the clutches of the Government and the bureaucrats. Recognise the fact that these  banks are being killed by the Government and the bad corporate Borrowers and they are the worst non performing assets in the economy as of today. They even seem to have forgotten their basic functions of mobilisation of deposits and deployment of the  funds  for the growth of the economy through making loans and investments for productive purposes.They drive away the customers with poor service and exorbitant service charges. Added to this, the tax on the interest income keep  away the small savers and they turn to other modes of savings encouraging even the informal and undesirable economic activities having undesirable social implications Also make  RBI independent in letter and spirit and make it accountable to the parliament..Without the support of sound banking and healthy financial system the economy cannot grow is a reality and it would be wise for the Government to realise this and act accordingly.

Dr T V Gopalakrishnan 

(This comment is in  response to an article Working on a plan to rebuild the capacity of the banking sector that appeared in Business line dated 13/10/17).

Understand the importance of RBI and allow it to function in the interests of the economy.

RBI balance sheet cannot be equated with the PSU's balance sheet and the Government cannot expect RBI to go on declaring dividends ignoring the responsibilities of RBI to manage the risks the Country can face both domestically and internationally. RBI's capital has remained unchanged at Rs 5 crores since its inception in 1935 and based on this capital the dividend paid to the government is of very high order.RBI being a very prudent conservative and responsible organisation has managed its affairs extremely well and has been transfering maximum surpluses to the Government and at the same time building up reserves to meet all contingencies. The approach of the Government to snatch away the resrves is akin to selling off family silver either out of greed or because of its arrogance to dictate to a well run institution  and weaken it or beause of its inefficiencies to manage its own fiscal. In any case, this requires a public debate factoring into the practices followed by the well run central banks of different countries. RBI unlike other corporates is definitely not run on commercial considerations is what the Government should realise and RBI is always backing the Government for all its socio economic policies with its highly professionlistic approach keeping utmost honesty , integrity and comepetence in delivering its assigned functions with or without autonomy. RBI has earned its International status and recognition inspite of the intervention from the Government on its day to day functions speaks volumes about its professionalism in pursuing very sound monetary policies and keeping the financial system of the country so far healthy and risks free. It has also ensured to keep its own finances strong is a master stroke and the Government should feel comfortable that its central bank is economically sound and keeps the country's economy stable and steady with all  its limitations on the role of the Government. The Government cannot ignore the fact that unlike other central banks of different countries RBI plays a unique role in supporting the developmental functions of the Government and tolerates all the political gimmicks played  using the banking system  ignoring the basic functions of banks ie acceptance of deposits and lending for the expansion of the economy and its all round growth. Dr T V Gopalakrishnan (This comment is in response to the Editorial Divided on Dividends that apperaed on the Hindu Business Line dated 8/917).

Banks turn out to be the weakest Institutions and RBI loses its glamour beyond recognition.

Liberalisation took away the discipline meticulously built upon banks boards and RBI in the grant of loans using banks scarce resources raised by way of deposits. Banks are not like any other manufacturing units as they basically deal with money and human resources as their raw materials. These are very sensitive areas and need to be dealt with uniquely to protect public trust in banks for their long tern sustainability , health and soundness. They are not expected to throw away the depositors money as advances to be eventually written off to suit the political convenience, bureaucrats' whims and fancies. Banks need a separate approach as long as they accept deposits and lend them to help the economy to prosper. Banks cannot be expected to throw away the public money  and remain silent when the funds are misused by the borrowers and the borrowers fail to contribute to the economy in terms of GDP growth. The loot was the direct result of liberalisation and RBI was also dictated to loosen its regulation and supervision. The result is the economy suffered perennially, banks became weak, depositors suffered, and shareholders lost their wealth. The monumental failure on the part of RBI is caused by the monumental failure of the authorities in recognising and understanding the banking system and the role assigned to RBI to develop a strong financial system. The loss is substantial now and it is becoming beyond remedy . Banks have become a source of recurring liability and they turn out to be the weakest institutions to support the growth of the economy envisaged .It is a pity that RBI is reduced to nothing and is also losing its glamour as one of the best Central Banks of the world for its professionalism, independence, integrity and role model status to be emulated by many a central banks including those in advanced countries.Man's ingenuity in killing strong institutions is something unbelievable .It reminds the saying that it takes twenty years for a woman to make a man of her boy , but it takes only a few  minutes to make a fool of himself by another woman.

Dr T V Gopalakrishnan

( This comment was given to Business Standard in response to the letter by R C Modi on the 27th of August.) 

RBI failed to do what it could do to protect its image as an Independent Central Bank.

All said, Dr Rajan also could not save RBI from its failure in various responsibilities particularly Regulation and Supervision of the Finacial system and the banking system in particular. The Instiution lost its glory and image and it has been reduced to a division of the Ministry of Finance and is being dictated as to what to do with its functions. The Instiyution has lost its independent thinking and operational freedom and some speeches here and there by the Governors have not helped to protect its reputation. No doubt individually almost all Governors have done well with their outspokenness, academic brialliance , but only a very few can claim that they have kept the image of RBI in tact under all political massacres the Institution had been subjected to. Dr Rajan is also not an exception. He came and conquered and kept his credentials in tact but allwed the instituion to weaken as all his predecessors except one or two perhaps. History of the Reserve Bank  if written unbiasedly will vouch for that. RBI has failed to do what it should do is the ground reality and this is because even veteran Governors failed to do what they could do.

Dr T V Gopalakrishnan

( This comment appeared in Financial Express dated 24/8/17 against the article Raghuram Rajan pens book RBI stint in turbulent times)

Old age and welfare

This refers to your editorials Rethinking Old age to the benefit of all and Innovative Saving Products for seniors that appeared in ET dated 13th and 14th July 2017 respectively. In this regard to quote  the adage that old age is a curse is very appropriate. Seniors are not wanted by the family, the society and the least by the Government is becoming true these days and unfortunately their percentage of presence is on the increase and it is around 6% of the population thanks to the increase seen in the lifespan. The cost of living particularly the health expenditures has gone up beyond the imagination of the old people and their earnings potentials. The approach of the government to seniors has also been adding miseries as the concessions enjoyed by the seniors in the form of additional interest, tax incentives,and other concessions are gradually vanishing or being curtailed drastically.Technology plays its own  adverse role in taking  away their charm of living. Th fast erosion of values and ethics  seen in the society also affects them emotionally in addition to poor health and financial conditions.  It is high time the Government introspects seriously  and do something concrete to mitigate senior Citizens' suffering and enable them to lead a dignified life in their advanced age. Lip sympathy is of no use.

Dr T V Gopalakrishnan

(Edited version of this appeared in ET dated 15/7/2017).

      

  

RBI's recent statement  on customer service in banks  and fleecing them is an eye wash. To day some papers have reported SBI's move to levy Rs 25 for every withdrawal from ATM. Banks ' financial position is very bad and no one knows their true worth. RBI has stopped detailed inspection of banks years back and the Government's interference in banks working has increased without any control. Some Committees appointed to look into  banks working  and suggest improvements  were only to fool the public as no concrete steps seem to have been taken to implement their recommendations.. The losses on account of NPAs cannot be easily recovered unless the banks widen their net to collect levies from all customers particularly deposit customers and small borrowers is the ground reality. This is the easiest way to cover up the losses. Unfortunately the Banks' Boards Bureau is also proving to be another NPA to suit the corporate borrowers who dictate terms to politicians, bureaucrats  and all Institutions which include RBI, Chartered Accountants Association of India and major  PSBs. The Banks' balance sheets and Corporates' balance sheets need to be thoroughly audited by  Specialist Investigating agencies to bring out the truth about their Financial position. More sensitive information is hidden than revealed and the only way is to enhance their bottom lines with easy and unquestionable levies from hapless depositors .   Good to see that Money Life has taken up the issue with all seriousness and is trying to get some justice for innocent depositors with whose money banks do business and enrich the undesirable  and the most undeserving elements in the society.  

Dr T V Gopalakrishnan

(This comment was sent to Money Life in response to an Article that appeared in Money Life dated 5/6/2017).

Make GST the game Changer

Apropos your editorial GST If it were done when it is done (ET dated 22/5/17), the ultimate objective of the GST is  to rationalise the taxes in such a way that the nation as a  whole will have only  one tax which will help to augment the revenues and distribution of wealth in an equitable manner and bring down the inequality of wealth and incomes among all states and the people The success of the GST no doubt depends on its effective implementation with adequate checks and balances to minimise corruption, leakage of collection and efficient and timely distribution of goods and services and the revenues through out the country.The administrative system needs to be made strong and accountable which is possible only if the Government moves ahead with the implementation of the GST with speed with adequate provision for  periodical review of  progress and revision of the rules of the game  in a befitting manner without loss of time and intended objectives.

Dr T V Gopalakrishnan

(this letter appeared in ET dated 23/5/17 with some modification.)

NPA Resolution - the New Ordinance

The present approach announced by the Government empowering more powers to RBI can at best find some solution with all problems to encash the accumulated NPAs. Its success is not guaranteed as the vested interests who have looted the banks systematically will not so easily yield to such pressures and tactics. What the banking system needs is to stop fresh flows of NPAs for which an unbiased approach to discipline the banks and borrowers is a must. No such attempts or intentions are visible in the new ordinance just released. Both stock and flow approach need to be rigorously implemented without any scope for interference from the Government , bureaucrats and politicians.

Dr T V Gopalakrishnan

5/5/17.

Make Capital out of Capital Market. Do not allow Dalal Street go the Wall Street Way

The sensex has crossed 30000 and the undercurrent seems to be very strong to take it further forward. The fundamentals of the economy are on the positive side, but the same cannot be said to be true with the Corporates and the banks as many of their balance sheets are weak and camouflaged.

The capital market which has undergone sea changes under the initiative of SEBI over a period has been unfortunately turning out to be a den for speculation and gambling keeping away the retailers from investing and helping the capital formation very vitally needed for reviving the sagging economy. The financial savings of the households have, of late, been registering a sharp decline and the investments in physical assets have been on the increase contributing nothing to the GDP growth. For want of adequate resources, the development of infrastructure has lagged behind and the confidence in the whole gamut of savings, investment and production has shattered. The household savings in financial assets have come down sharply over a period. Retailers’ investment in capital market is insignificant if not negligible. The trend in resources mobilized over a three year period by the Corporate Sector can be gauged from the following table.
Total Resources mobilized by Corporate Sector                                                    (Amount in Rs crores)              
Year Equity Issues Debt Issues Total Resources
2010-2011 1,14,466 2,28,236 3,42,702
2011-2012 40,729 2,96,868 3,37,597
2012-2013 78,408 3,78,444 4,56,852
2013-2014 73,394 3,18,436 3,91,830
Source: SEBI bulletin May 2014
The capital market which should reflect the strength of the economy in fact reflects predominantly the speculative tendencies based on the sentiments of a few market participants. Unfortunately the FIIS have more say in the capital market than the domestic players and they dictate the terms and conditions. The fundamentals of the economy which should be the yardstick to influence the market have been relegated to the background and the movement of indices is only reflective of movement of inflows of speculative funds of FIIS. The macro economic factors like the fiscal deficit, current account deficit, the GDP growth, inflation, value of the rupee, industrial and agricultural production etc are all weak and by any stretch of imagination one cannot explain  as to how the market indices are getting strong day by day other than by the speculative instincts. No doubt the change of the non performing Government and expectation of high Governance standards from the new set up partly account for rise in index, but it is too early to sit on judgment on Government's performance. This speculative trend seen in the capital market needs to be reversed and this is possible only if domestic institutions and corporates strengthen their resource base by tapping the domestic savings through attractive financial products including equities and bonds.
It is the best opportune moment for the new government to come out with some innovative ideas and facilities to enhance, convert and divert the household savings into investments in capital market. The investments in shares through IPOs have turned out to be a very bad experience for retailers during the last decade because of high and greedy pricing of the issues and they have burnt their fingers forcing them to go out of the market and seeking greener pastures elsewhere. Persisting high inflation has added fuel to fire. Gold and real estate have attracted huge investments over a period depleting the savings in banks and investments all around. The Rajiv Gandhi equity investment scheme introduced by the then Government offering tax exemption up to Rs 50000 investments in equity to attract retailers into the capital market has not gone well with the investors and this needs to be scrapped totally or modified drastically. Expecting people in small cities and suburbs who have absolutely no knowledge of shares and for whom having a bank account itself is a herculean task in these days of banks' insistence of KYC without understanding its' relevance, to invest in equities and that too through a demat account which is compulsory to hold the equity investment is simply unrealistic and if not totally utopian. When the Financial Inclusion particularly banking inclusion has not taken off very well, the expectation of the Government to attract savers particularly those from middle income and lower income class to equity market is unintelligible and unrealistic.    

To make the capital market a place for large savings, SEBI has to necessarily ensure that the share of retailers get augmented considerably keeping an obligatory minimum of 25% of the paid up capital of all listed companies. The companies that have exceeded this minimum and have been having more than 50% should get some special recognition from the Government and incentives. Till the Companies reach 25% of retail ownership, there should not be any STT for first time buyers of shares of these companies. To avoid undue speculation in the market, the SEBI can think of introducing loyalty bonus for retention of shares by individuals for more than a prescribed minimum period. STT can also be suitably modified to prevent speculation both on buying and selling. STT can be different for FIIS and domestic players in the market. Similarly STT can also vary for institutions and individuals. Different slabs can also be thought of for levying STT on purchases and sales. With proper modification and intelligent marketing, this can emerge as a regulatory tool to attract small savers to capital market, contain speculation in the market, mobilize maximum savings towards capital formation and enhance optimum revenues to the Government.

Corporates declaring dividends and bonus shares at regular intervals need to be incentivized. Similarly Corporates raising resources from rural and semi urban areas can also be given some tax concessions or some incentives. This will give a boost to tap household savings from these places. Domestic financial and other institutions investing in capital market and raising resources from capital market have to be facilitated with suitable products and processes   to get in and get out of the market and there should be in place effective regulation and supervision with adequate checks and balances to prevent frauds and irregularities.

The capital market is the best source of raising resources for the Government at this critical juncture and the money locked in the form of gold, real estate, hard cash and otherwise also can be easily tapped   with proper reforms in the form of policies, products and processes. Readiness on the part of the authorities is all that matters. A healthy and vibrant capital market supported by sound and proactive administration, regulation and supervision can change the economy into a most promising and prosperous one fulfilling the aspirations of the  Government and the people of this great nation.

Dr T.V.Gopalakrishnan                                                                                                                         (Views are personal)

Free the PSBs From the Govt's clutches and make them healthy, professional and commercial.

The need to give a kick start to the economy by making the PSBs healthy and highly professional in their very business of raising deposits and lending money is paramount and very urgent and any delay in reviving the banks can badly affect their very survival in business leave alone supporting the economy which is otherwise stagnating for want of timely and cheap credit. The banks have to shift all their very badly identified and un provided for NPAs as on 31^st March 2017 to an escrow account  to be maintained by the Government and they need to be very intensively followed up with all legal and other measures to recover the dues at the earliest..  

Since the PSBs are becoming weak by day due to mismanagement of advances portfolio resulting in the accumulation of  non performing advances and stoppage of  of expansion of fresh credit for productive purposes, there is an equally and urgent need to make them highly professional and commercial  in their management of credit and risk to ensure that the fresh formation of NPAs does not occur any more and if at all they recur, they need to be liquidated and taken care of by banks and bad borrowers themselves through some self correcting mechanism in place. A small levy of penalty based on banks and borrowers’ conduct of loan accounts will do the trick. It is rather unfortunate to observe that though the cost of funds for banks has come down considerably thanks to sudden spurt in deposits at low interest rates after demonetization of high denomination notes, banks are finding it extremely difficult to cut the lending rates and find avenues of credit expansion thereby creating a serious uneconomical mismatch of assets and liabilities. The solution for slow pick up of credit lies in changing the business model and to realign the assets side removing the NPAs from the balance sheets and build up of new short term credit and less of infrastructure loans. Long term bonds  which can  take care of infrastructure finance can also rescue both the banks and the Government to find resources. If these bonds are made tax free, public subscription is also guaranteed without any limit.

What is needed now is that the Government should keep away from banks, make the Banks Boards Bureau more accountable in its expected role of individual bank’s performance, make the RBI to intensify its regulation and supervision over formation of bad debts and improve the quality of loan assets. After all  what the economy needs is  improvement in its overall performance in terms of better macro economic fundamentals like investment, production, consumption savings, employment and equitable distribution of wealth and for that  a strong banking system is sine qua non.    

Dr T V Gopalakrishnan

Make Banks healthy and Professional

Make banks healthy and professional

The banks particularly the PSBs are becoming weak by day due to mismanagement of advances portfolio resulting in the accumulation of  non performing advances and stoppage of  of expansion of fresh credit for productive purposes.Though the cost of funds  for banks has of late, come down considerably and deposits have also gone up despite low interest rate and unimaginably deteriorating customer service, banks are finding it extremely difficult to cut  the lending rates and find avenues of credit expansion thereby creating a serious  mismatch of assets and liabilities. The deposits have gone up substantially thanks to demonetization of high denomination notes of Rs 500 and Rs 1000 but  the credit pick up has not been commensurate thereby threatening the very survival of banks in business. The solution for slow pick up of credit  lies in changing the business model and to realign the assets side removing the NPAS from the balance sheets and build up of new short term credit and less of infrastructure loans. The present burden of high level of NPAs  other than  substandard advances which are on the borderline of bad debts needs to be  shifted from the balance sheet creating an escrow account elsewhere supported by the Government bonds exclusively created for the purpose and subscribed by Institutions and Public.. As and when recoveries happen with a vigorous enforcement of remedial measures, these bonds can be liquidated. The need for a healthy and highly professional banking is paramount to give a boost to the economy and the NPAs should not come in the way of banks to expand their business.

The prevention of formation of NPAs is equally important to keep the banks  healthy and active in their basic business of raising deposits and advances. Professional approach of banks  to their business is the need of the hour to keep them surviving and supporting the economy which is otherwise stagnating for want of timely and cheap credit. 

Dr T V Gopalakrishnan          

If there is a will there is a way to come out of the NPA menace

The Indian banks particularly Public sector banks are always shielded from disaster and liquidation as they are regular sources of finance and incomes for many vested interests. The beneficiaries are the Government, Banks' Boards of directors, Politicians, Bureaucrats, Big Industrial  Borrowers, Lawyers and Chartered accountants and the losers are hapless depositors, helpless retail borrowers and innocent tax payers. Even the general customers of banks have to bear the brunt  through enhanced service charges unknowingly for all the inefficiencies of banks and the wrong decisions of the powers that control these banks.

The Government needs financial support to take care of its own deficit financing, political ambitions and promises to extend perennial financial support to non viable and uneconomical projects under the guise of Priority Sector lending and provide dependable source of finance to keep the major infrastructure projects started with or without professionals and definitely without any accountability for the end use of the resources obtained from banks. The amounts written off by banks and the costs incurred to  cover up the  failures of banks by forced mergers and acquisitions using Public sector banks have never been questioned and are in fact  all  accepted  as normal business practices. The  write ups on Banks' weaknesses and risks they carry only help a small segment of the population to understand the mismanagement but they are also equally  helpless except perhaps in  writing rejoinders and submitting representations through Change.org in. The joke that if one has a gun he can rob a bank but if one has a bank he can rob the entire society without being noticed or questined is literally being experienced by all is not a joke in reality. From April 1st onwards, all stake holders of banks and the economy will be fleeced mercilessly thanks to the inefficienices of banks in running their busnesses professionally and commercially.     

There are no serious attempts to prevent formation of NPAs in banks by disciplining the Bankers, Borrowers, Accountants, Lawyers and Regulators is a fact and definitely not intended in any way is also a ground reality. Volumes have been written on the resolution of NPAs in banks for decades and the amounts being written off as bad debts and the costs incurred in maintaining NPAs, discussing the problems in what ever forum available and attracting the attention of every one who matter in the country are something terrifying and mind boggling. Unfortunately, the politicians , the bureaucrats, the regulators, the bad borrowers and the banks know very well as to how to perennially  ensure flow of  NPAs in banks without thinking of any lasting solution is what one wonders. This is the art of mismanagement at the cost of tax payers and the depositors. The so called effective Governance continues to be evasive and public bear the brunt as if it is their fait accompli.

Dr T V Gopalakrishnan

Stock and flow approach to tackle NPA menace in Banks.

Stock and flow approach to tackle NPA menace

Banks NPA menace is perennial and needs to be contained on a war footing to make the banks strong, attract investments and take the economy forward on a strong track.  This calls for a two pronged approach. The Staggering NPA stocks need to be taken off the balance sheet of banks as on 31 March 2017 and transferred to an Escrow account to be maintained by RBI with bank wise details and all possible steps to recover through sale of assets, recoveries through legal and other modes available involving even venture capital with incentives to take over such assets need to be seriously and expeditiously considered and implemented.  Since formation of NPAs is a natural process in banking because of the very nature of business involving money and human resources, fresh flows of NPAs need to be minimized through introduction of intensive professionalism in the conduct of credit portfolio of banks and discipline, and penalty for the erring borrowers scientifically with effective and unbiased governance standards of regulation and supervision. Subsidizing the banks’ losses on account of NPAs by squeezing tax payers, depositors and other stake holders of banks and the economy should come to an end once for all and the Banks Board Bureau has to be judged on its own performance in eradicating this disease of cancer from banks and the borrowers. The need to keep away politicians and bureaucrats from Banks is sine qua non to make the banks professional and accountable. 

Dr T V Gopalakrishnan

Very appropriate Monetary Policy from RBI

The RBI's  monetary policy(announced on 8/2/16)stance change from being accommodative to neutral is perhaps a message to the Government  and banks that more fiscal  and administrative  measures are needed to kickstart the economy particularly after the stagnation  witnessed thereon since demonetisation of high denomination notes.The banks are flooded with funds and the cost of funds has come down but the transmission of the earlier reduction of policy rates ie 1.75% effected by the RBI   has only been partial leaving little room for RBI to warrant another reduction. But for the benign inflation, all other macro and micro economic factors have not been  favourable and the external economic conditions also do not seem to be very conducive for change in policy rates is a fact which cannot be overlooked by the Monetary Policy Committee.Further, the banks' own  financial position is also not very comfortable with ever increasing non performing loans adding to the cost of funds and threatening to the financial stability. The poor demand for bank loans also  reflects on the lower demands on products affecting investment, production and recycling of funds.In this background, the present approach of the RBI is very appropriate and is a food for serious thought for all policy makers to revive the economy and banks as well to perform.RBI may have to wait for a few quarters more to have a feel of the impact of the recent budgetary measures on the economy in general and industrial production in particullar to consider policy rates changes. 

Dr T V Gopalakrishnan

    

The Banks need to be highly professional

Apropos your editorial Banking on good faith (The Hindu dated 27/1/2017), the credibility of borrowers from PSBs in particular has been fast eroding thanks to the accumulation of bad debts and inability of the enforcement mechanism to recover the banks’ dues. The reasons for such a state of affairs are not far to seek. The failure of professionalism in PSB’s boards in running the banks commercially, interference of politicians and bureaucrats in the banks’ functioning, laxity of supervision of banks by the Reserve Bank, lack of involvement by the Chambers of commerce and Industry in disciplining their members in the proper conduct of banks loans which are nothing but depositors’ money  and tax payers’ ignorance that they are subsidizing the huge bad debts and consequent losses and inability to voice their concerns have all contributed in weakening the banks and the erosion of trust in the entire governance system. In this background, the arrests by the Central Bureau of Investigation of former IDBI officials and some of the borrowed Company’s officials are well intended and have definitely sent a warning signal both to the erring officials of banks and bad borrowers as well. However, this cannot be considered as adequate unless and until the key figure behind the corporate Mr Vijay Mallya is booked and made accountable for all the  banks dues and they are fully recovered. Of course, this sort of severe action should not make bankers wary of extending credit as the economy is very badly in need of huge investments for its all round growth and the banks are already flooded with funds due to the demonetization effect. Banks’ business is to lend and expand economy and this has to go on professionally covering the risks commercially and profitably benefiting all the stake holders of the economy Viz; the Government, the banks, the depositors, tax payers, borrowers and public at large.  

 Dr T V Gopalakrishnan      

Sathya meva Jayathe. Yatha Raja Thatha Praja.

Promises and practices do not match. If all the promises of the politicains had been implemented, the country would have reached welfare status decades back. Even after seven decades of independence politicians seek votes on the promise of removal of poverty,prevention of corruption , generation of black money and provision of essentials including toilets. food,shelter and clothes. People are realising this but they have no choice but to vote for some better crooks (with lesser evils)among the contestants as the country is destined to suffer perennially under Democracy.Loot is the criterion pursued by  majority of politiicans and who loot comparatively less is given a chance to rule. Politicians have plundered the economy and some politicians have looted for generations together.  Bureaucracy helps, plans and share the loot. In this background, whether Budget comes before or after elections, it does not matter much to common man as his status as common man ever remains the same under all sorts of elected governments. Of course, there is a welcome change if it can be said so that now he is also allowed to loot in his own way and that is reflected in the society in different forms ie, corruption black money, greed in the pricing of goods and services,etc.No accountability is seen anywhere. Policemen loot, Judiciary loot, bankers loot, traders loot, brokers loot, borrowers loot and why not politicians and common man? People have come to know these and they are also joining the band wagon.A small percentage is forced to follow virtue and they suffer.But the number is dwindling as indicated in the number of those who file tax returns and who pay taxes. Only 2.4 million out of 125 crores of people have declared income above Rs 10 lakhs is a prrof that pursuing honesty is not a virtue and is not expected unless some wants to be in a fools paradise. Delhi alone should account for this figure if honesty is practised by the rulers, authorities and people at large. No shortage for slogans. They are plenty to satisfy the masses. Satyameva jayathe. Yatha raja thatha Praja. 

Dr T V Gopalakrishnan

This comment is given in Times of India against the Article budget goodies cannot sway away indian voters appeared on 15/1/17).

Retain RBI's Independence in tact.

Never before has RBI's name been more besmirched than today.

The PAC wants to prosecute the Governor.

Wait for a few days more. It wont be an exaggeration if RBI becomes a part of the Ministry of Finance  and gets named as Central Banking Division headaed by a Joint Secreatay . Its Identity as an Independent Central Bank of the Country would be totally eliminated as things stand today. Its autonomy and Independence depends on the top  management and the way it handles its functions as envisaged in the Reserve Bank of India Act, 1934. RBI has earned worldwide recognition and is known as one of the strongest Central Banks amongst many a well rated Central Banks  for its professionalism, competence and  integrity in discharging all its functions keeping the interests of the people, the economy and maintaining inter-alia the democratic image of the Government Strong and Well noticed. RBI's way of handling both domestic and international economic problems is time tested and it has not only survived but also could keep its image very high in handling very ticklish issues like Balance of payment crisis in the early 1990s, foreign exchange crisis faced by the asian economies in late 1990s and global financial turmoil in 2008 etc. The very fact that RBI has earned a name for itself and the Government in power among both advanced and emerging economies  is something unique and this needs to be protected in the interests of the nation and the economy.   

Dr T V Gopalakrishnan

Introduce Transaction Tax to redue corruption and augment tax collection.

Replace capital gains tax  and introduce Transaction Tax both  for the buyer and seller of Securities, real estate and commodities.This tax can be recovered at the time of transaction like Security Trans action Tax  now in vogue and there is no administration hassle.The Government has only  to ensure that the tax collected comes to Government's kitty without any leakage. Once the GST is rolled, this can be merged as part of GST. The approach of the Government should be to simplify tax laws, make it attractive to pay voluntarily as far as possible and collect the taxes at source. The tax terrorism should not be there and the corrupt practices now resorted to  by the tax payers, tax officials and tax evaders can be got rid of if transaction tax is introduced. The transaction tax can also replace all forms of Direct Taxes to give a big boost to revenues and get rid of the corrupt practices seen everywhere. 

Dr T V Gopalakrishnan

Fix black money generation through the budget

This refers to the Article Get the lagaan Right(ET dated 10/1/17).No doubt the budget for 2016-17 assumes importance to fix sevewral problems of the economy including the black money in one stroke. The recently concluded  Demonetisation exercise with long term  well intended objectives  has not been a great success as envisaged due to its faulty  implementation, but it has succeeded to  bring the black money in banking fold which will help to fix the problem with ease. This has also created awareness on black money holders  on the need to fix corrupt practices, to avoid evasion of taxes and also to opt for payments through banking modes using technology. Now what it requires only a strong administration with lots of follow up measures and provision of facilities for tax compliance voluntarily. Enhanced Tax GDP ratio through an imaginative and result oriented budget can be a reality provided there are checks and balances to fix the evasion with simplified tax laws, lower taxes, and attractive tax compliance incentives. People have whole heartedly welcomed the demonetisation expecting Ache Din ahead and have put up with all sorts of inconveniences and the Government needs to be proactive to compenasate them. liberally. The economy needs a kick start to  attract investments, augment production both in agriculture and Industry to provide the much needed employment opportunities. Black Money Generation should be disincentivised by all means and the  ensuing budget is the solution for that. Hope the Government will not miss the opprtunity.. 

  

Dr T. V Gopalakrishnan