IS RBI RIGHT IN ORDERING PSU BANKS TO CUT RATES?

Dr.T.V.Gopalakrishnan , Mumbai , says: The Govt is not expected to issue orders direct to psu banks.The regulation and supervision of banks is the prerogative of the Reserve Bank and if at all the Govt wants banks to act in a different manner, it can take up the matter through the Reserve Bank.This approach of the Govt shows its dominance and arrogance as owner of the PSU banks ignoring RBI's presence and entitlement in terms of statutory provisions under the Banking Regulation Act, 1949 to issue directions to the PSU banks. This sort of dual control on banks will only weaken the banking system as it happens in Cooperative Banks.This way of excercising control over banks by the Govt is neither advisable nor desirable nor permissible in the interests of the healthy and sound banking system. The banking system in India is strong and the credit goes to the Reserve Bank and this sort of interference from the Govt would only undermine the powers of the Central Bank and that is not good either for the economy or for the financial system.
20 Apr 2012, 0816 hrs IST
(This is in response to an opinion poll in ET dated 20/04/12.This appeared in ET on 20/0412).

RBI"s cup of many woes

The article is well written and captures very accurately all the ills the economy face today for the action and inaction of the Govt. The author has also brought out the inadequacies on the part of the Reserve Bank in tackling the issues purely as a central bank and as a professional institution. Instead of the Govt giving support to the Reserve Bank for tackling the issues of the economy, the move of the Reserve Bank in playing to the tunes of the Govt is something unintelligible and unbecoming of an autonomous institution in case it is. The article should serve as an eye opener for all concerned and measures to prevent the economy from entering into a crisis situation similar to that of the earlier 1990s need to be initiated. It is not the issue of prestige of institution.it is the issue of a growing economy and this realisation is the need of the hour. As rightly warned,CentralBanking like politics should not become the art of possible. Kudos to the author for such a timely warning.

(This is in response to an article by Mythili Bhusmurmath appeared in ET dated 16/4/12)

RBI and the Govt to act togother

Your editorial comment on the economy was apt (“Little hope for 2012,” January 2). The year 2011 will go down in the history of our economy as the worst performing year since India’s economic liberalisation. The reason you have given for the poor performance – the mismanagement of the economy by the government – shows your unbiased approach and openness in assessing an economy and that is commendable. But it should be noted that the growth potential of our economy remains strong and a little more attention from the government and other institutions, particularly the Reserve Bank of India (RBI), can make 2012 a better year. Inflation is softening and the situation may improve with a favourable monsoon and credit support. RBI can consider reducing the interest rates and improving the liquidity further to ease monetary conditions and attract fresh investments. RBI and the government have to make a joint effort to instil economic confidence by all means. If they are able to do so, 2012 may not end up being such a bleak year after all.

T V Gopalakrishnan Mumbai