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.)