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)

Old age and welfare

This refers to your editorials Rethinking Old age to the benefit of all and Innovative Saving Products for seniors that appeared in ET dated 13th and 14th July 2017 respectively. In this regard to quote  the adage that old age is a curse is very appropriate. Seniors are not wanted by the family, the society and the least by the Government is becoming true these days and unfortunately their percentage of presence is on the increase and it is around 6% of the population thanks to the increase seen in the lifespan. The cost of living particularly the health expenditures has gone up beyond the imagination of the old people and their earnings potentials. The approach of the government to seniors has also been adding miseries as the concessions enjoyed by the seniors in the form of additional interest, tax incentives,and other concessions are gradually vanishing or being curtailed drastically.Technology plays its own  adverse role in taking  away their charm of living. Th fast erosion of values and ethics  seen in the society also affects them emotionally in addition to poor health and financial conditions.  It is high time the Government introspects seriously  and do something concrete to mitigate senior Citizens' suffering and enable them to lead a dignified life in their advanced age. Lip sympathy is of no use.

Dr T V Gopalakrishnan

(Edited version of this appeared in ET dated 15/7/2017).

      

  

RBI's recent statement  on customer service in banks  and fleecing them is an eye wash. To day some papers have reported SBI's move to levy Rs 25 for every withdrawal from ATM. Banks ' financial position is very bad and no one knows their true worth. RBI has stopped detailed inspection of banks years back and the Government's interference in banks working has increased without any control. Some Committees appointed to look into  banks working  and suggest improvements  were only to fool the public as no concrete steps seem to have been taken to implement their recommendations.. The losses on account of NPAs cannot be easily recovered unless the banks widen their net to collect levies from all customers particularly deposit customers and small borrowers is the ground reality. This is the easiest way to cover up the losses. Unfortunately the Banks' Boards Bureau is also proving to be another NPA to suit the corporate borrowers who dictate terms to politicians, bureaucrats  and all Institutions which include RBI, Chartered Accountants Association of India and major  PSBs. The Banks' balance sheets and Corporates' balance sheets need to be thoroughly audited by  Specialist Investigating agencies to bring out the truth about their Financial position. More sensitive information is hidden than revealed and the only way is to enhance their bottom lines with easy and unquestionable levies from hapless depositors .   Good to see that Money Life has taken up the issue with all seriousness and is trying to get some justice for innocent depositors with whose money banks do business and enrich the undesirable  and the most undeserving elements in the society.  

Dr T V Gopalakrishnan

(This comment was sent to Money Life in response to an Article that appeared in Money Life dated 5/6/2017).

Make GST the game Changer

Apropos your editorial GST If it were done when it is done (ET dated 22/5/17), the ultimate objective of the GST is  to rationalise the taxes in such a way that the nation as a  whole will have only  one tax which will help to augment the revenues and distribution of wealth in an equitable manner and bring down the inequality of wealth and incomes among all states and the people The success of the GST no doubt depends on its effective implementation with adequate checks and balances to minimise corruption, leakage of collection and efficient and timely distribution of goods and services and the revenues through out the country.The administrative system needs to be made strong and accountable which is possible only if the Government moves ahead with the implementation of the GST with speed with adequate provision for  periodical review of  progress and revision of the rules of the game  in a befitting manner without loss of time and intended objectives.

Dr T V Gopalakrishnan

(this letter appeared in ET dated 23/5/17 with some modification.)

NPA Resolution - the New Ordinance

The present approach announced by the Government empowering more powers to RBI can at best find some solution with all problems to encash the accumulated NPAs. Its success is not guaranteed as the vested interests who have looted the banks systematically will not so easily yield to such pressures and tactics. What the banking system needs is to stop fresh flows of NPAs for which an unbiased approach to discipline the banks and borrowers is a must. No such attempts or intentions are visible in the new ordinance just released. Both stock and flow approach need to be rigorously implemented without any scope for interference from the Government , bureaucrats and politicians.

Dr T V Gopalakrishnan

5/5/17.

Make Capital out of Capital Market. Do not allow Dalal Street go the Wall Street Way

The sensex has crossed 30000 and the undercurrent seems to be very strong to take it further forward. The fundamentals of the economy are on the positive side, but the same cannot be said to be true with the Corporates and the banks as many of their balance sheets are weak and camouflaged.

The capital market which has undergone sea changes under the initiative of SEBI over a period has been unfortunately turning out to be a den for speculation and gambling keeping away the retailers from investing and helping the capital formation very vitally needed for reviving the sagging economy. The financial savings of the households have, of late, been registering a sharp decline and the investments in physical assets have been on the increase contributing nothing to the GDP growth. For want of adequate resources, the development of infrastructure has lagged behind and the confidence in the whole gamut of savings, investment and production has shattered. The household savings in financial assets have come down sharply over a period. Retailers’ investment in capital market is insignificant if not negligible. The trend in resources mobilized over a three year period by the Corporate Sector can be gauged from the following table.
Total Resources mobilized by Corporate Sector                                                    (Amount in Rs crores)              
Year Equity Issues Debt Issues Total Resources
2010-2011 1,14,466 2,28,236 3,42,702
2011-2012 40,729 2,96,868 3,37,597
2012-2013 78,408 3,78,444 4,56,852
2013-2014 73,394 3,18,436 3,91,830
Source: SEBI bulletin May 2014
The capital market which should reflect the strength of the economy in fact reflects predominantly the speculative tendencies based on the sentiments of a few market participants. Unfortunately the FIIS have more say in the capital market than the domestic players and they dictate the terms and conditions. The fundamentals of the economy which should be the yardstick to influence the market have been relegated to the background and the movement of indices is only reflective of movement of inflows of speculative funds of FIIS. The macro economic factors like the fiscal deficit, current account deficit, the GDP growth, inflation, value of the rupee, industrial and agricultural production etc are all weak and by any stretch of imagination one cannot explain  as to how the market indices are getting strong day by day other than by the speculative instincts. No doubt the change of the non performing Government and expectation of high Governance standards from the new set up partly account for rise in index, but it is too early to sit on judgment on Government's performance. This speculative trend seen in the capital market needs to be reversed and this is possible only if domestic institutions and corporates strengthen their resource base by tapping the domestic savings through attractive financial products including equities and bonds.
It is the best opportune moment for the new government to come out with some innovative ideas and facilities to enhance, convert and divert the household savings into investments in capital market. The investments in shares through IPOs have turned out to be a very bad experience for retailers during the last decade because of high and greedy pricing of the issues and they have burnt their fingers forcing them to go out of the market and seeking greener pastures elsewhere. Persisting high inflation has added fuel to fire. Gold and real estate have attracted huge investments over a period depleting the savings in banks and investments all around. The Rajiv Gandhi equity investment scheme introduced by the then Government offering tax exemption up to Rs 50000 investments in equity to attract retailers into the capital market has not gone well with the investors and this needs to be scrapped totally or modified drastically. Expecting people in small cities and suburbs who have absolutely no knowledge of shares and for whom having a bank account itself is a herculean task in these days of banks' insistence of KYC without understanding its' relevance, to invest in equities and that too through a demat account which is compulsory to hold the equity investment is simply unrealistic and if not totally utopian. When the Financial Inclusion particularly banking inclusion has not taken off very well, the expectation of the Government to attract savers particularly those from middle income and lower income class to equity market is unintelligible and unrealistic.    

To make the capital market a place for large savings, SEBI has to necessarily ensure that the share of retailers get augmented considerably keeping an obligatory minimum of 25% of the paid up capital of all listed companies. The companies that have exceeded this minimum and have been having more than 50% should get some special recognition from the Government and incentives. Till the Companies reach 25% of retail ownership, there should not be any STT for first time buyers of shares of these companies. To avoid undue speculation in the market, the SEBI can think of introducing loyalty bonus for retention of shares by individuals for more than a prescribed minimum period. STT can also be suitably modified to prevent speculation both on buying and selling. STT can be different for FIIS and domestic players in the market. Similarly STT can also vary for institutions and individuals. Different slabs can also be thought of for levying STT on purchases and sales. With proper modification and intelligent marketing, this can emerge as a regulatory tool to attract small savers to capital market, contain speculation in the market, mobilize maximum savings towards capital formation and enhance optimum revenues to the Government.

Corporates declaring dividends and bonus shares at regular intervals need to be incentivized. Similarly Corporates raising resources from rural and semi urban areas can also be given some tax concessions or some incentives. This will give a boost to tap household savings from these places. Domestic financial and other institutions investing in capital market and raising resources from capital market have to be facilitated with suitable products and processes   to get in and get out of the market and there should be in place effective regulation and supervision with adequate checks and balances to prevent frauds and irregularities.

The capital market is the best source of raising resources for the Government at this critical juncture and the money locked in the form of gold, real estate, hard cash and otherwise also can be easily tapped   with proper reforms in the form of policies, products and processes. Readiness on the part of the authorities is all that matters. A healthy and vibrant capital market supported by sound and proactive administration, regulation and supervision can change the economy into a most promising and prosperous one fulfilling the aspirations of the  Government and the people of this great nation.

Dr T.V.Gopalakrishnan                                                                                                                         (Views are personal)