Download App on Important Banking News I have huge volume of praise for present RBI governor who is not only intelligent but also brave, bold and firm in his approach,. He did not reduce interest rates under pressure of politicians and corporate houses.
He has made it clear
how banks are making provisions for terminal benefits accruing to employees. He
has boldly accepted that banks were not and some banks still are not making
adequate provisions towards their liability for payment of wage revision,
pension, gratuity and other terminal benefits. He said that many provisions
which should have been done long ago but banks did not do so to inflate profits
and now they amortized these provisions to save their balance sheet from
turmoil.
In the year 2010 and
2011 it was clearly exposed by trade union leaders how public sector banks
willfully avoiding making adequate provisions towards pension and bad loans
liability and inflated profits. These banks distributed dividends without
earning profits and caused capital erosion and now they are facing the self
created crisis.
I would also like to
hope from him dilution and reduction of all stimulus packages allowed in favour
of big corporate houses in the year 2008 to meet so called global fiscal
crisis. He should prevail upon bankers to made full provisions honestly and
punish severely top officials of banks who willfully and cleverly do not do so
despite instructions from RBI. CMDs and ED of banks who provided less on wage
revision and pension liability should be brought to task because they are willfully
repeatedly committing such mistakes.
RBI Governor should
create an example of punishing top officials who willfully concealed bad assets
for years together and got exposed only when identification of Bad debts
started through Core Banking solution under pressure from RBI. Punishment
should be awarded to EDs and CMDs of banks who are continuously and who are
even now indulged in window dressing of their balance sheet by concealing bad
debts through the methods of rephsaing, restructuring, ever greening of bad
loans and through tapering technological tools as exposed recently in United
Bank of India. I have no doubt that most of banks are still in habit of playing
foul game with man, machines and methods.
I put emphasis on
punishment to top officials only because it is top officials who propagate bad
culture on phone and by giving verbal instruction. Junior level officers do not
have guts and courage to protest ill-motivated orders of their bosses in fear
of repercussion in form of critical transfers and rejection in promotions for
decades ( top officials have ‘Bhrahmastra’ of Interview to reject any good
officer on their whims and fancies. ).
It is the dirty
game of rising in career that top officials inflated profits for decades, at
least after the reformation and free era launched from 1991and which continues
even now in one form or the other. The culture of “Yes Sir” and flattery has
damaged the fundamentals of all public sector banks and it will need some
surgical operations and also some change in treatment.
As regards interest
rate, I praise him once again that he did not reduce interest rate to give
benefits to corporate. Rather I would like to suggest that RBU should once
again adopt and prescribe Uniform interest rate structure for all banks keeping
in view national priorities to avoid unnecessary, unwarranted and avoidable
competition among banks of the same government. Banks should focus on business
expansion by extending excellent service to customers and not by sacrificing
bank’s income at the cost of investors and depositors.
Reduction of interest
rate by big banks like SBI or PNB results in loss to weak bank which is part of
the same government. And ultimately it is the government which has to bear the
loss by way of capital infusion.
RBI should not promote
the habits of first demanding dividend from these banks and then infusing capital.
Government and RBI in particular should stop the culture and tradition of first
damaging banks for political advantage and then coming to rescue of these banks
as they have given treatment to other public sector undertakings.RBI should understand the need of respectable wage hike of bank employees because it is only they who can cure the health of banks.
RBI should not be bailing out banks with liquidity infusion: Raghuram Rajan
Interview with Governor, RBI
Speaking to the media after the central bank’s monetary policy review, Reserve Bank of India (RBI) Governor Raghuram Rajan says, in an election year, it is better to be ready for any eventuality. Edited excerpts:
Policy stance
RBI’s policy stance will be firmly focused on keeping the economy on a disinflationary glide path, intended at eight per cent CPI (Consumer Price Index) inflation by January 2015 and six per cent by January 2016. Currently, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy. Further, if inflation continues along the intended glide path, further policy tightening in the near term is not anticipated.
I hope the only thing surprising about the monetary policy today (Tuesday) is the lack of surprise. I am glad financial markets and analysts have understood what we are doing.
Liquidity
I think the intent is to provide sufficient liquidity to markets — both short-term liquidity, consistent with maintaining the call money rate close to policy rate, and providing long-term increases in RBI’s balance sheet, consistent with appropriate growth of credit in the economy. Now, our focus is on a rate of credit consistent with the inflation we are looking at and the economic growth we anticipate. To the extent open market operations and asset purchases are consistent with that through the next year, we’ll accommodate what we can.
Potential growth
My concept of potential growth is somewhat nebulous — to an extent, the supply constraints in the economy will have an effect on potential growth to the extent supply constraints are alleviated through, for instance political action that could enhance potential growth in a relatively short time. In that sense, I do not think when we talk of potential growth, we are talking of the structural growth prospects of the economy, which could be quite different, given our population, etc, provided supply constraint issues are addressed.
Impact of El Niño
On food prices, it isn’t a given that the impact of the El Niño will be seen. Conditional on the El Niño, it isn’t a given that food production will plummet. If it does, it isn’t a given that inflation will be high across the board. So, there is lot of uncertainty, and what will happen cannot be anticipated.
Government action
As far as the Budget outlook goes, we have a vote on account right now. Clearly, the new government will have to announce a new Budget and that’ll take into account the need for a fiscal consolidation path. I think a number of measures will have to be looked at; we have to wait for that.
On differentiated and on-tap banking licences
The point is, we shouldn’t be giving licences every 10 years. Also, there is scope for having people with partial licences — only for payments or lending — to come into the system. This will allow people to have banking capabilities with a relatively smaller size, which will allow them to apply for full banking licences down the line. A framework will be developed in the next few months and then, the process will start soon after. It takes some time for applications to be vetted. What we have learnt this time is how to do the vetting carefully and that will be part of the process. I can’t give you a date; I can only say we hope to open the window quite soon. We might open the window for differentiated licences and then move to open the on-tap for universal licences.
Window dressing
What happens towards the end of a year is banks try to build a certain kind of balance sheet. For example, the CD (certificates of deposit) market became very tight in February. So, we took some preemptive action to improve liquidity. But in the long term, we think RBI should not be in the business of bailing out the banking system with infusion of liquidity when the banking system is creating its own problems. We have to change the incentive structure and we are thinking of a variety of ways. We will discuss with bankers how we can improve liquidity towards the year-end. The year-end should not be a time for anything special to happen; it should be smooth.
The next government
Clearly, markets are anticipating a stable government and rapid policy action. To the extent markets are disappointed, it will reflect on stocks, perhaps on bond markets and exchange markets. We have to be prepared for some turmoil. If the government isn’t stable, provided any new structure shows appropriate concerns about the economy, fiscal conditions, etc, I suspect after an initial bout of turmoil, there might be reassessment, which will be positive. Let us wait and see. We have to be prepared for eventualities.
Policy stance
RBI’s policy stance will be firmly focused on keeping the economy on a disinflationary glide path, intended at eight per cent CPI (Consumer Price Index) inflation by January 2015 and six per cent by January 2016. Currently, it is appropriate to hold the policy rate, while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy. Further, if inflation continues along the intended glide path, further policy tightening in the near term is not anticipated.
I hope the only thing surprising about the monetary policy today (Tuesday) is the lack of surprise. I am glad financial markets and analysts have understood what we are doing.
Liquidity
I think the intent is to provide sufficient liquidity to markets — both short-term liquidity, consistent with maintaining the call money rate close to policy rate, and providing long-term increases in RBI’s balance sheet, consistent with appropriate growth of credit in the economy. Now, our focus is on a rate of credit consistent with the inflation we are looking at and the economic growth we anticipate. To the extent open market operations and asset purchases are consistent with that through the next year, we’ll accommodate what we can.
Potential growth
My concept of potential growth is somewhat nebulous — to an extent, the supply constraints in the economy will have an effect on potential growth to the extent supply constraints are alleviated through, for instance political action that could enhance potential growth in a relatively short time. In that sense, I do not think when we talk of potential growth, we are talking of the structural growth prospects of the economy, which could be quite different, given our population, etc, provided supply constraint issues are addressed.
Impact of El Niño
On food prices, it isn’t a given that the impact of the El Niño will be seen. Conditional on the El Niño, it isn’t a given that food production will plummet. If it does, it isn’t a given that inflation will be high across the board. So, there is lot of uncertainty, and what will happen cannot be anticipated.
Government action
As far as the Budget outlook goes, we have a vote on account right now. Clearly, the new government will have to announce a new Budget and that’ll take into account the need for a fiscal consolidation path. I think a number of measures will have to be looked at; we have to wait for that.
On differentiated and on-tap banking licences
The point is, we shouldn’t be giving licences every 10 years. Also, there is scope for having people with partial licences — only for payments or lending — to come into the system. This will allow people to have banking capabilities with a relatively smaller size, which will allow them to apply for full banking licences down the line. A framework will be developed in the next few months and then, the process will start soon after. It takes some time for applications to be vetted. What we have learnt this time is how to do the vetting carefully and that will be part of the process. I can’t give you a date; I can only say we hope to open the window quite soon. We might open the window for differentiated licences and then move to open the on-tap for universal licences.
Window dressing
What happens towards the end of a year is banks try to build a certain kind of balance sheet. For example, the CD (certificates of deposit) market became very tight in February. So, we took some preemptive action to improve liquidity. But in the long term, we think RBI should not be in the business of bailing out the banking system with infusion of liquidity when the banking system is creating its own problems. We have to change the incentive structure and we are thinking of a variety of ways. We will discuss with bankers how we can improve liquidity towards the year-end. The year-end should not be a time for anything special to happen; it should be smooth.
The next government
Clearly, markets are anticipating a stable government and rapid policy action. To the extent markets are disappointed, it will reflect on stocks, perhaps on bond markets and exchange markets. We have to be prepared for some turmoil. If the government isn’t stable, provided any new structure shows appropriate concerns about the economy, fiscal conditions, etc, I suspect after an initial bout of turmoil, there might be reassessment, which will be positive. Let us wait and see. We have to be prepared for eventualities.
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