RBI, the Government and the Manifesto.

The need to have a strong and independent Central Bank is paramount and essential to strengthen the economy and its financial system. An independent Central Bank is really a strong support to  the elected Government to perform and project its image nationally and internationally. The friction and simmering relationship between the Central Government and RBI if brought to market and public notice can only damage the image of both and bring more harm to the Government in the process as it would be  construed as failure on its own part to deliver as per its manifesto and pass on the buck to the central bank by dictating terms against established Prudence, Convention and Practices. The autonomy and health of the Central bank if ignored can have ripple repercussions on the Economy ,the Government and People. This has to be understood by the politicians in power and their supporting bureaucrats by introspecting and seriously pondering as to how the Central banks in advanced and major economies function and how independent and accountable they are to the Governments in power. No Central Bank can be a Department of the Ministry of Finance. BUREAUCRATS and TECHNOCRATS have  different roles to perform which are complementary to each other and beneficial to the Nation and all its stake holders.The Common objective is to have a well performing economy deriving the intended benefits as per the Manifesto of the Government in power  and keeping the Institution strong and enviable.

Dr T V Gopalakrishnan

RBI , Central Government and the Economy

Though the Central Government has over riding powers in terms of RBI Act, the Circumstances  that led to invoke the section 7 would require to be justifiable and legally tenable in national interest. As long as RBI seem to have  acted with reasonable prudence in national interest and RBI Board  which Consists of  only  Government  Nominees and Government appointed nominees  approve all actions of RBI the need to invoke section 7 of RBI will have to be convincing and legally justifiable. The fact that the issues under dispute are actions initiated by the RBI  in national interest and have the approval  of the Board, how the need to issue fresh directions invoking section 7 has arisen can be taken  only with a pinch of salt by the general public..The fact that Government has failed in keeping its balance sheet strong and there is a need to draw down the reserves of the Reserve Bank will not be convincing in the absence of a very serious national calamity requiring Reserve Bank  come to the rescue of the nation as a lender of last resort.. Definitely and fortunately such a bad situation has not arisen and there are some differences where the coordination and understanding between the RBI and the Central Government are missing. The issues  having come to public notice calls for a national debate involving matured politicians having established statesmen qualities, bureaucrats who have proven achievements to perform without any political bias, academicians of high caliber, legal luminaries , Economists and men of high social standing and character It is not the question of RBI's independence , but it is the question of failure of the whole administration in enhancing the quality of administration in developing the economy and strengthening the much needed  strong Financial  system and  its stability and long term sustainability. Even the RBI Act may require an amendment if the Government desires transfer of its reserves than what  has been originally indicated as per the relevant provisions. After all people are interested only in their welfare and Institutions like RBI are set up exclusively for that with a difference that their Board of Directors are appointed to perform certain specific functions based on their academic qualifications, professional expertise and well established caliber in public service  and not elected..to pass on some freebies to win over the  poor masses. RBI has so  far lived up to its expectations despite  several ups and downs and challenges from domestically and internationally. markets and earned its Recognition and reputation as one of the best performing Central Banks in the world. The credit goes to the Governments in power for allowing the Institution to function independently and in close understanding with the Government. This needs to be continued in the interests of the Institutions' strength, the Government , the economy and all its stakeholders.    .   

Dr T V Gopalakrishnan

Respected and honourable Minister,
I did a thesis on Management of NPAs under Madras University giving a practical solution to contain formation of NPAs in banks by disciplining both erring banks and borrowers on a scientific basis. The thesis well rated by the Examiners was brought out as a book as recommnded by them and it carried a preface from none other than the former Governor of RBI and 12th Finance Commission Chairman Dr C Rangarajan. I sent a copy of the book to our Honourable PM for possible implementation of the mathematical suggestion to prevent formtion of NPAs and liquidate the NPAs in case generated because of business and genuine failures through some fund specifically created without taxing the tax payers and other stake holders of the banks and the economy. Since the problem of NPAs has grown beyond any ones' imagination and
has been adversely affecting  banks, borrowers, the economy and the Governments' image in particular , I thought I should make a last attempt to bring to your kind notice the suggestion to prevent the disease of NPAs than to find a  evasive cure.
The book "Management of NPAs in PSBs" was published by the Indian Institute of Banking and Finance in the year 2004.One of my earlier suggestions to levy share security transaction was found implemented in the year 2004 and this has been fetching fantastic revenue to the Government without any inflationary impact and curbing the excessive volatility in the Capital market.Since you have got an imaginative approach to solve ticklish issues, I thought, I should bring this suggestion to tackle NPAs, in our PSBs in particular.
Yours  faithfully,
Dr T V Gopalakrishnan
A Senior Citizen .

RBI cannot and should not be a party to window dressing of Banks' Balance sheets.

Window dressing of banks balance sheets  by Chartered Accountants  colluding with top management has been going on for decades and now RBI's intervention by  granting permission to  banks the option to spread provisioning equally over up to four quarters for mark-to-market (MTM) losses on investments is one that recognises window dressing of figures officially.  At this rate, when the banks would be disclosing their correct Financial position in the backdrop of staggering non performing loans, evergreening of loans through all imaginative accounting gimmicks to camouflage bad debts, write off of loans, inflating the deposits through grant of fresh loans at periodic intervals to impress / fool the owners and regulators and covering up all illegal and wrong doings through accounting jugglaries is a mystery unfathomable. Unfortunately the depositors and poor share holders bear the brunt directly and  all the stake holders of the banks Viz the Government, shareholders, good borrowers , innocent tax payers , non borrowers of banks and general customers who support the banks by availing various services indirectly. How long this game of fooling the masses by intelligent presentation of banks'health which is actually an ICU case  can go on is baffling indeed! Banks should come back to their basics and know their functions of mobilising deposits and lending these deposits who are involved in the development of the economy and this needs to be understood by staff, management, regulator and authorities. They are not to be used as conduits to loot without being noticed or seriously taken by those who matter in managing the economy and fiances of the Country. Banks cannot afford to be non performers to those who lend money to banks ie Depositors and to the economy which is dependent on banks for all its developmental needs. Banks and authorities are morally socially, ethically, and economically bound to serve the country and the people and this opportunity should not be abused or misused in any manner. 

Dr T V Gopalakrishnan

Prevent formation of NPAs in banks along with Recovery process.

well written piece.The banks are being made non perforeming with planned loot and this needs to be stopped
once for all. Genuine failure of business and bad debts in banks are understandable but the way the loans 
running into crores and crores are turning bad debts is something beyond comprehension . In this context
one is reminded of only what our former Prime Minister Mr Atal Bihari Vajpayee said "We cannot allow 
peoples' faith in economic liberalisation to be shaken by those who do business with an ethical deficit".
Lack of professionalism in banks' Boards and lack of discipline among the large borrowers have contributed to
the mess in banks and unfortunately all stake holders of the economy are made to suffer perennially. While 
the present inititiative of the Government through Insolvency and Bankruptcy Code can definitely bring in
solid improvements in the recovery of bad debts provided the same borrowers are not allowed to thwart
the scheme through devious means,what the banks need is long term and lasting solution to prevent the 
formation of bad debts through bringing in professsionalism in banks Boards and corporate borrowers in 
running their businesses.Effective Corporate Governance in banks and accountability to the parliament
can improve the health of both banks' and corporates' balance sheets and make them substantially 
contribute to the overall growth of the economy.The acting Finance Minister with his solid finance background and having brought in tangible results in the energy sector can definitely make the banks and the bad 
corporates perform better and make the dream of the PM to make the economy grow fast and achieve 
welfare for all a reality. Will it not be a good idea to introduce a built in mechanism to discipline the borrowers
and banks and find resources to liquidate bad debts if any by not taxing the tax payers and other
stakeholders of banks?

T V G Krishnan

This comment appeared in Money Life dated 22/5/18.

All checks and balances practised in banks have been given a go bye over a period  for reasons known only to the  Banks Boards and Perhaps to RBI also. The periodical transfer of staff particularly handling sensitive desks and fraud prone areas, internal audits, concurrent audits, periodical visits of Executives to branches to have a feel of the branch functioning through interaction with staff, major advances customers, depositors etc , insistence on control returns to have a sense of wrong advances and check on them, external audits where window dressing is very liberal to cover up all wrong doings, frauds,etc have been either diluted or totally given up.. The Reserve Banks Control through periodical inspection of major branches and  branches where advances concentrate, scrutiny of sensitive returns, insistence on adherence to prudential norms etc  have been made perfunctory of late and savings on costs  through curtailment of staff, cancellation of trainings, stoppage of  essential supervisory and regulatory exercises have been justified diplomatically and convincingly allowing the rot to take place in banking. The over all result is wide spread frauds , loot through bad debts, and unjustifiable expenditures in banks resulting in loss of credibility in Governance standards and weakening of banks functioning.  Less said the better about banks functioning these days.

Dr T V Gopalakrishnan

( Comment given in Business Standard.)

PNB Scam and trade facilities

This refers to to your Editorial PNB Scam should not stop trade Finance (ET dt 23/2/2018). The fact that Nirad Modi scam did happen because of laxity in the checks and balances on the operation of loan accounts particularly misuse/ abuse of Letters of Undertaking should not lead to stoppage of facilities facilitating trade finance and development of international trade.  As it is, the public sector  banks are struggling  to survive because of non expansion of credit and high cost of funds thanks to unprecedented staggering of bad loans, the stoppage of non fund based limits like letters of undertaking for some operational  lapse  like reconciliation of accounts between banks,  exclusion of transactions from core banking and avoiding swift guidelines to help some unscrupulous borrowers can only add to the miseries of PSBs affecting adversely international  trade and commerce. No doubt the PNB scam has necessitated the  need to tighten the regulation and supervision  of banks both internal and external which unfortunately got relaxed under the guise of liberalization and cost cutting, but this should not take away the role of banks in providing the much needed support to the economy at this crucial time when  global expectations are very high and opportunities are plenty to perform well and emerge as the fast growing economy. Time has really come to live up to the promise of minimum Government and maximum Governance and this requires an overhaul on the role of RBI, Banks ‘Board Bureau and PSBs’ Boards. Earlier the Government keeps away from banking the better for the Economy. Ease of doing business should really ease but should not result in frauds and scams for  want of adequate checks and balances in banks day to day  operations.

Dr T V Gopalakrishnan

Recapitalization of banks

While recapitalization is essential to ensure banks survival in the backdrop of accumulated Non performing assets and poor credit growth,the Governance efficiency in banks independent of the Governments' interference is equally paramount to sustain the banking in their banking business. While the efforts to recover the bad debts should continue without any relaxation, at the same time the banks should  put all efforts to prevent generation of fresh Non performing Advances and save themselves from getting extinct from the  business through loots of the borrowers. The seeds of NPAs are always sown during credit expansion and the recapitalization approach prompt banks  to expand credit and they have to be extremely careful in selecting the borrowers and area of credit expansion.Prevention is always preferable than curing the disease.Banks need to be very wise and highly professional in safeguarding  their business of acceptance of deposits for the purpose of lending and not losing the depositors' money through the art of lending to bad borrowers. It is high time the banks realize that the depositors are becoming wise and they chose their banks based on their health, financial soundness, standards of customer service, regulatory compliance and above all efficiency and independence of management in running the banks.

Dr T V Gopalakrishnan

Make Public Sector Banks Perform and Accountable.

Unless  and until the Public Sector Banks perform, the economy cannot  be expected to perform the way the PM , the IMF and the whole world expect in these days of reform , perform and transform and echoed eloquently in the recently held World Economic Form at Davos. No doubt the banks need recapitalization, but more than that what they need is a professional approach supported by an independent thinking and acting Board, Management and staff and is made accountable to the Regulator first and through the Regulator to the parliament. The expectations from the Boards Bureau were very high and unfortunately along with banks, the Bureau also turned Non Performing resulting in the far below  performance of the economy and its over all potential. The Trust in banks is fast eroding  thanks to their  staggering non performing advances,non accountability of the Boards and the Regulator and lack of independence,functional autonomy and the bail in proposal mooted in the proposed FRDI bill to bail out bad borrowers and bad banks using depositors money.The deposit growth in banks is stagnating and the customer service is deteriorating beyond imagination. Capital formation through household savings is declining due to erroneous tax policies and incentives to save by all means including high cost of living. Periodical recapitalization of banks and tolerance of accumulation of bad loans and write off of loans have been acting as moral hazard and both the banks and borrowers develop a tendency to relax and exploit .The need for banks to perform is paramount and it requires development of bond market to support infrastructure development, capital market reforms to enable banks to resort to take out finance to supplement their own resources and administrative changes to make banks accountable for all their lapses in deposit front, advances area and provision of  Customer service to expand Customer base and retain them.    

Dr T V Gopalakrishnan