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)