Canara Bank, Interest Rate and high cost of funds.

The bank blames RBI for not cutting down interest rates. It is absurd and amounts to passing on the buck to RBI for bank's own failure in managing the balance sheet.The admission that bank is not able to mobilise adequate deposits at low rate of interest is a major reason for high cost of funds. Further, keeping high level of NPAs is another reason for bank's failure to reduce the cost of funds. Depending on borrowed funds at high cost to do banking business and maintaining high NPAs without disciplining the willful defaulters will naturally add to the cost of funds and bank  cannot blame RBI for that. It is unfortunate that bank is taking shelter blaming  RBI   for its miserable failure in Asset Liability Management. The point that bank is paying more on some deposits than what it fetches on advances is a serious issue and these advances and deposits need to be investigated. Unless and until there are some under cuttings to favor the favored borrowers  such a thing cannot happen. The NIM of the bank is also not comparable with its peers only indicates that there is some serious deficiency some where in the management of assets and liabilities.The move of the bank to reduce bulk deposit is appreciable and it will automatically bring down the cost of deposits. The answers given by the Chairman  in his interview with Business line are not very convincing to justify its comparatively low NIM, high NPAs, high cost of deposits and over all position of the bank.Reserve Bank  being a monetary authority of the Country has a different agenda and the policies pursued by it also factor in the banks' profitability, cost of funds,  interest rates et al. The banks fail RBI in transmitting its monetary policies in letter and spirit is an issue to be seriously debated by the banks in India.

Dr.T.V.Gopalakrishnan

(This comment  in a slightly modified manner appeared in Business Line dated 1/7/13 in response to Canara Bank's CMD's remark that Interest Rates cannot be reduced as the cost of funds is very high )

Gas price Increase Is it okay?

The proposed gas price hike may not be convincing from a rationale angle when election is round the corner. Such a major policy decision having implications on the entire economy and its people could have been postponed by having an interim relief sort of arrangement as rightly brought out by the author. The force behind such a drastic step seems to please some of the Corporate giants under a quid pro quo which is intelligible to all in the helm of affairs but not to the ordinary masses who will bear the brunt when the pass through effect a comparatively new concept to pass on the cost to consumers is given.By doing this, the Government can pass through its present difficult situation and pass on the benefit to Corporates and perhaps see through the election with enough of monetary support.The intentions of the Government are clear and very many. Economists and professionals cannot have a correct perception of the policy perspectives.This announcement has pleased the market players as the Sensex rose sharply by 519 points in a very short time.This economy is run by a few industrialists,a handful of politicians,some market players for whom the theories of economics and nuances of Corporate Governance do not matter much, is known to a vast majority of the educated class. The justification for such a policy comes from the self interest as is the case in respect of all major policies. 

Dr.T.V.Gopalakrishnan

( This comment is in response to an article Gas price Increase is not Convincing that appeared in ET dated 28th June 2013.)

Present Road Conditions in Bangalore

The roads are very narrow and they are also not in good condition.There are no foot paths making it compulsory for pedestrians to walk on the road affecting the free flow of traffic. In some roads, the dividers are not properly laid and big stones are scattered here and there affecting the smooth flow of traffic and endangering the two wheelers. In many of the roads hawkers, vendors and all sorts of commercial activities including repair shops, tea shops, and small traders of all kinds occupy the roads and many who use these services park their vehicles in a haphazard manner. These are small impediments which can be easily taken care of if the traffic police act in collision with corporation authorities,put some efforts by having a mobile supervisory mechanism. This is not very expensive and irritants can be comfortably removed. Having an airport at Electronic city and linking the present airport with the electronic city are long range plans and very expensive projects. No doubt, they will definitely ease the movement of traffic, For the present, at least the Govt can concentrate on removing the present hurdles and make traffic flow a little faster. The signalling system in Bangalore needs much to be desired which causes delay in the flow of traffic and creates avoidable traffic jam. Will the authorities look into seriously? Better to have some lessons from major cities like Mumbai, Chennai etc.

Dr.T.V.Gopalakrishnan

Opportunity for India to perform

What ever happens in China, India should take it as an opportunity to put into optimum use of its natural and human resources to put up a brave face and take advantage of the international market where chinese had an upper hand. Our trade deficit with China may be a problem but India can overcome it by strengthening its traditional exports to China and also improving our exports to International markets where China has fallen short and is likely to get hit.Our economy has basic strength but political environment is always a bit of a problem and herein lies the solution. IT is our strength and the economy should think of exporting our IT skills to China to the optimum which will also be helpful to China to find some solace to its own problems.There are areas Where China is weak and India is strong and earlier our Govt identifies and initiates action, the better for our economy to come out of its own present pathetic condition. 

Dr.T.V.Gopalakrishnan

(This comment appeared in ET dated 25/6/13 in response to an Article on 'Troubled Panda could open Pandora's box for India').

Banks and KYC norms.

When husband and wife both senior citizens submit their proof of residence and passport copies with originals for verification, the State Bank that too in Mumbai insisted that there should be a proof to confirm that the couple are really husband and wife. He was not satisfied when indicated that the lady's passport carries her husband's details and both are personally before him. Is it kyc compliance or arrogance of the highest order and that too from a branch Head who is pretty senior and perhaps without any common sense or any sense to be a BM? An article on this has been published in Business Line in the month of April 2012. The  banks' authorities should act seriously when  such cases are reported and convince the bankers what is the rationale behind KYC norms. It has come to mean KEEP away Your Customers or kill Your Customers. or Know your Customers Contacts is the ground reality. 

Dr.T.V.Gopalakrishnan

The fate of rupee

Through this article the author has severely warned the Government for all its failures on the economic front. The inaction of the Government to bring out structural changes in the economy to give a boost to the economic growth has created this inevitable and perhaps avoidable  poor economic condition. The free fall of rupee was in the horizon for quite some time and being a resourcefully strong economy the Govt could have taken some harsh decisions on the economic reforms and implemented. On the contrary the budgets presented till 2013 and policies pursued only helped the economy to nose dive in all fronts starting in the flows of foreign exchange in both directions.The dangers on dependence on foreign funds and that too short term funds are well known and Indian Economy has sufficient internal resources to be tapped for developmental needs and as such the inflows of short term funds could have been either eliminated or discouraged. The dependence of Capital market on FIIS needs to be completely avoided giving a signal to the international market that the economy is strong enough to sustain its market and its liquidity conditions. The article has given a strong message to the authorities to ponder over the policies so far pursued and identify the commissions and omissions to set right at the earliest to avoid major catastrophe. 

Dr.T.V.Gopalakrishnan

( This comment appeared in ET is in response to an article on Expect things (read the rupee) to get worse before they get better in ET )

FM to meet bank Chiefs on 3rd July

It is heartening to note that the FM has finally realized that banks do not transmit the monetary policy in letter and spirit. Banks have failed to respond to the Reserve Bank's and the Government's call to reduce the lending rates to various categories of borrowers is a fact which has been brought out by many from the academic and finance circle.  Unfortunately  the Government ignored the call of the Reserve Bank and banks have been given directly and indirectly the freedom to act in their own way.. The banks' NIM has been on the very high side by any reckoning and the economic conditions of the country do not envisage to have a such high NIM at the cost of borrowers and other stake holders of banks. The deregulation of SB rate of interest has not made any impact and banks have merrily ignored deposit customers all along and found favor with borrowed funds to do banking business ignoring the domestic economic conditions which need maximum mobilization of domestic resources. The major banks particularly SBI have been harping on reduction of CRR to have access to funds kept in RBI ignoring the spirit behind the regulatory requirement and having obtained the reduction in CRR of 200 basis points and policy rate reduction of 130 basis points, they did not care to pass on the full benefits to the borrowers. The result is that even good  borrowers failed to repay the loans and go in for fresh investments causing the economy to suffer. The banks failed to cooperate with RBI is a fact and this has affected the economy in different ways. Savings in banks have come down, savings have been diverted to other assets, NPAs have increased,  productive loans have fallen down and all stakeholders who include the GOVT, the economy, the depositors and borrowers have suffered in the process. The FM will do well if he can make the bankers to work in the interest of the economy sacrificing a bit of their craze for profit and enhanced bonus and productivity rewards.

Dr.T.V.Gopalakrishnan

( This is in response to the news item Chidambaram may back borrowers in July3 meeting with bank Chiefs that appeared in Business Line dated 24/6/13) .