India’s financial regulator at loggerheads!

At the height of the ongoing worldwide recession, the Fed chief, Ben Bernake’s predictably shocked appearances used to discourage we all, who so far didn’t stopped believing in the might of otherwise a foregone power-‘central banks’. The current case of RBI’s Chairman-D.Shubbarao is not much different after escaping his contagious ‘smile’ that essentially translates nothing much than invisible ‘unease’ around him. And here, common men have to pass through a sort of ‘illiteracy syndrome’ every-time while decoding such unbreakable code.

Ironically, unrelenting mysterious smiley’s from the RBI’s head is troubling for this dreaming nation alike, as finance ministry responds every such move with the irritated doses of ‘we will march alone’ and other principles, which are practically unconquerable. A close look on the financial policy making suggests the inherent contradiction within it. The ambiguity on two goals, respectively, lower inflation and high growth is the basic reason behind the unusual mock and verbal tussle between north block and mint street. This unworthy raw is a fruitless exercise without having any clear end in its sight.

The RBI’s stubbornness on keeping interest rates in anti-growth mode has deteriorated the chances of bouncing back for Indian economy, which is grappling with a very odd combination of high inflation and lower growth. In all, the rational part of governance is completely lacking even now, for pushing up the momentum in right course. Earlier, the meltdown sentiment had favoured RBI and its conservative role with ‘no touch and playing safe’ approaches were hailed like ‘concert of chimes’.

Those difficulties have given a new sort of complex time for the Indian financial market, where the issues of working or not on the stated agenda are heavily depends upon the rapport, finance ministry and RBI maintains. It utterly disappoints, the way RBI is losing ‘ease’ with the government and attention from the core issues. Here, it will be also worthwhile to recall that somewhere government too is overstepping in the shoes of central bankers-the abrupt announcement of more private sector banks in the budget speech of Pranab Mukherjee and later lax handling by the RBI on this shows the prevailing s state of affairs.

After twenty-one years of liberalisation programme, Indian economy has grown up in the size and maximization of the wealth is also no longer a ‘non-reality’ for the different income groups. But in these years, the income gap has also spiraled up like never before and the ‘income security’, which both the good socialistic and capitalistic system necessitates, as the programme to execute has been cornered over the years. The system, which walks with the two foremost powers- regulation and capital, is not keeping concern for an equitable system under immense pressure from the cronies and political classes, with large though hidden business interests.

However, not to miss the case of allowing fair and advanced banking in the country, the RBI must ensure the action requires without stopping the strict regulatory watch over the players in the fray of financial sector. As at some point of time, the buzz of innovation too needs careful handling. On this count, the RBI has so far responded well with treating the exotic financial products quite stringently. But its proactive part remained in hibernation, when chances arose to lift the Indian financial market out of working below potential.

Once the RBI was a well shaped moderator but under the changing pattern of financial businesses, it’s falling in the league of its peers, where the desperation is virtue in dealing with the stagnant economies. Much to dismay of the optimists, finance can no longer be handled with the extreme of liberal or stringent set of rules; instead believing in the capacity of spontaneous action by the leadership would make tone much better. In all weather and season, the RBI’s governor should know the pulses of economy down from the rural terrains to the up-market areas of metro cities.

The balancing exercise would be critical here to the further course of action for India’s financial market. The combination of populist politics and over mechanized economic bureaucracy would do no well to the India’s economy, which is in perplexed state on its own future. Knowing where to act effectively in the policy making would solve the petty issues in the high circle that causes endless troubles to the believers of sound financial administration. Access to the institutional finance plays vital role in ensuring the fair chances of employment for the youths.

The entrepreneurial zeal is not weak in India albeit more practical banking approaches are the need of this hour. Still, it would be wrong for the RBI or finance ministry to compare India with the western economies, which have shaped through the different historical developments and ofcourse with the support of colonial projects. India can’t go artificially in the history for overlooking on odd economic issues.

Unlike, India as a new nation and old civilisational land, needs to keep growing and under the aegis of its commendable democratic system. Neither the totalitarian China nor the lightly floating USA would make India, what its majority of people dreams relentlessly. The loggerheads must stop and RBI should think for the common men and business communities too, as nothing would go untoward hereafter!
Atul K Thakur
November2nd, 2012, Friday
Email: summertickets@gmail.com
(Published in Governance now,dated on November10, 2012)

The RBI's unsavoury policy dictates!

The RBI has been the master of all weathers and seasons concerning India’s financial sector. It holds the pulse of the national economy with tempestuous effects. But even with all its prominence, the RBI has seldom crossed the contoured spirits which obfuscate the existing macroeconomic scenario. The scrimmages from its side are causing for the fixture of topsy-turvy status in the policy domain, finally making the broad-brush more frequent than the desirable spunky actions. Until two years back, world was witnessing the central bankers sullen acts; India was indeed a sort of exception so far. But things have entered in torsion once the India’s impregnable finance ministry and the RBI got struck in the endless war stimulated by the ‘egoists’.

It’s clear that, the finance ministry is the most important place in India after the Prime Minister’s Office --this sounds awkward but becomes evident when seen against the recent reshuffling in ministries, when the serving home minister was called to hold the command of economy. This marks the moral bankruptcy, as the new finance minister will be hardly reckoning the plight of the economy which originated through the clash of interest between real and rave components -- moreover, he lacks the critical tributes like acceptance and expertise for handling a diverse economy like India’s.

This mischance will boost many inside the RBI, who earlier relied on static and soft monetary policies that at least in last one-and-half-years have cut India from both of its central economic ideologies based on ‘half-willing socialism’ and ‘half-sighted dreams of reform’. Among the list of blunders, the RBI’s extraneous policy regarding the licensing of new banks under the private sector refers the unique misunderstanding of the whole issue. It’s obvious that, the RBI is not keen on banking licenses for corporates, not to work with any neo-egalitarian model of banking based on ‘maximum happiness’ of clients of different types and figures but for securing the power to superseded the boards of existing banks and leaving the case of banking expansion in its backyard.

The insistence of the central bank on amendments to the Banking Regulation Act by the Parliament as a prerequisite for any potential flex on banking licensing is flawed and objectionable. It may be true that none of India’s NBFCs are fit enough for the award of baking business, though the many interested public sector entities could be taken for a ride under the joint venture in private partnership. Also, there would have been nothing wrong by downing the obstination on allowing corporate world at large to enter the fray of banking based on competency, not by the channel of cronyism.

By the impression of numbers, India’s corporate sector is performing but by the spirits, in no manner it’s worth of calling ‘robust’. By an example, almost all heads of India’s private sector banks have downplayed the chances for few more private banks, citing the already high competition and its aftereffects on their businesses. These were all untoward statements with no technical precision or understanding of a height of possible stagnation with which India’s banks will be reckoning sooner than the later. Banking should be means for the profit but not for the oligopoly; unfortunately, the reverse is the case in India today -- not surprising in present scenario, if the SBI has lost its tag of being the most valued bank in market terms from one of its shrewd peers.

Notwithstanding its actual role, the RBI is maintaining silence over the future growth of India’s financial sector, which has been safe more for its undersized ambition than the claimed ‘prudence’. This is totally ironic watching the curtain down on the future of India’s more than 55 percent unbanked citizens and overall the growth of financial sector at large. The path India’s banking has travelled so far hardly allows one to part the views between progressivism and ultra-materialism, here the things have to be seen in the right context. Public sector banking was more a hedging intervention, so it would be unfair considering the nationalisation of banks as the complete socialistic manifestation. PSBs/RRBs played their role immensely well and would do more good under the perfect competition around the every nook and corner.

Not even remotely, the arrival of few more banks would harm their business; contrarily it would help the sagging market sentiments to get an upward touch. Instead fearing and sharing those misleading apprehensions, the RBI should create a true healthy work culture in PSBs/RRBs, which are remarkable by their business and reach.

RRBs especially deserves much better deal in terms of human resource policies. It’s shocking to see the RBI/finance ministry’s dualism in taking them as at par with the PSBs, where the service benefits like pension is now the part of system. This discrimination should be ended by introducing the service provisions including of pensions for the RRBs employees on the line of PSBs With more than 17,000 branches across the India’s rural heartlands and the small towns, RRBs can be seen as the engine of rural growth in India -- so they need an immediate broad unification at the national level with an effective professional board, which can lead the rural banking for more inclusive businesses.

India’s jobless growth or the slow industrial momentums are the outcome of chronic passivism from the RBI for the mass issues. It’s not more than an excuse in passing the fault on global financial uncertainty by the India’s policy regime for the present mess-up at domestic front. The last two decades of India’s growth story was based on the domestic consumption strength, rather than on any other fancied factors. This should be the time of reckoning by India’s central bank, moving clearly and with a goal must be the basic catch which it has been missing for long under its mix of placid shows off and painful affects. Until India’s central bankers will rise from their very long slumbering, any hope to see the financial sector on bloom would be near about the day dreaming in a rainfed season like the present!
Atul Kumar Thakur
August31st2012,Friday
Email: summertickets@gmail.com
(Published in Governance now on August27th 2012/ http://governancenow.com/views/columns/rbis-unsavoury-policy-dictates )

The Unquiet Regulation

In India, RBI has an edge to regulate key financial markets-money markets, government securities market, credit market and forex market besides the usual role of a Central banker. This enables RBI to apply regulatory purview over the interconnected channels between banks and other financial sector entities-but with such unusual regulatory load, do RBI justify its every role as top authority from financial stability perspective? It’s hard to defy the growing overload on RBI-creation of Financial Sector Legislative Reform Council {FSLRC}&Financial Sector Development Council {FSDC} during the last Union Budget have even maximized the RBI’S overtures with Finance Ministry. The mammoth task and hyped expectations forced RBI Governor, D.Subbarao to accept the denial of additional arrival of debt market under the purview of RBI; he even laid stress for divulging the existing power from governor to respective committees on key policy decisions.

Out of conservatism and indeed with many insightful policy measures, RBI has ensured over the years a stable growth of Indian financial market albeit the shade on its autonomy and new circumstances in the post reform era have diminished its earlier touch on crucial policy matters. If RBI knows that despite hard efforts, still half of Indian population is unbanked, so the goal of financial inclusion is distant reality-on the other side, Finance Ministry works on popular temptations of growth instead considering inclusive and stable development of economy. Confrontations of RBI-Finance Ministry, especially in last few years have sharpened and it’s obviously an unfortunate outcome of Finance Minsitry’s intervention in day to day working of RBI. This is a worrying trend and must be checked out before the nerves of Indian financial market will be finally derailed from the esteemed regulation of RBI.

Following the incessant soft touch on credit policy and its ineffective impact on inflation in last few quarters, RBI has increased the Repo and Reverse Repo Rate by 50basis point and deregulated the Saving Bank Deposit Interest Rate. In a recent discussion paper on Saving Bank Deposit Interest Rate {RBI, April 2011}, the reason cited that monetary policy transmission has been suboptimal as it was unchanged since 2003 when the rate was last raised from 3.5% to 4%. As expected banking stocks promising negative past credit policy of RBI, hereafter atleast in short terms, investors will have to cope with the perplex scenarios.

Inflation is much bigger issue and RBI Governor, D.Subbarao sounds very rational when he said there is no quick-fix solution for inflation control in a rapidly growing economy like ours-in a complex economic matrix, it’s truly unreasonable to expect that only monetary policy will ease the pain of inflation. Those who are in political authorities have to realize sooner that inflation is not strictly the sole by-product of demand supply mismatch from the technical parameters of Whole sale Price Index{WPI}& Consumer Price Index{CPI}. The growing cohorts nexus among Corporate, Politicians, Government officials and relentless supply of unclean funds by many routes including suspicious Sovereign Wealth Fund, Participatory notes are making this nation reach in terms of obscene numbers of billionaires and leave majority lagging behind that itself narrates the story of our wounded economy.

Amidst the surging scams, Government/Regulators stand like mute spectators which mark the complete shift of democratic values. There uses to be time, when for a few lakhs rupees of wrong investment, Nehru’s son-in law and MP, Feroze Gandhi started a historic debate in the Lok Sabha [1958}on the state-owned Life Insurance Corporation’s investments in the dubious companies of a tainted industrialist, Haridas Mundhra {The Mundhra affair, Indian Express, December 12, 2008, Inder Malhotra}-though the financial charge was a few lakhs but Nehru’s response was in sharply contrast to what happens these days. He spoke of the “Majesty of Parliament” and instantly ordered a judicial inquiry by one of the most remarkable judges, M.C.Chagla. The inquiries findings led to the resignation of finance minister T.T.Krishnamachari and an exceptional Civil Servant, H.M.Patel. This was the first such case of high official’s sacking Indian democratic history but alas, similar couldn’t replicated here onward and what we witnessed the consistent erosion in democratic values with terrible misuse of power.

In such gloomy parochial atmosphere, it’s hardly surprising to see the working of regulators like SEBI&IRDA which runs like sovereign horse… without any clear mandate or essential /constructive intervention from government. G.Mohan Gopal, a former board member, SEBI has recently highlighted how the SEBI board abused powers to protect Chandrashekhar Bhave {Then Chairmen, SEBI} in IPO scam {2003-06}-it’s an open secret now how the Bhave has stagnated the highly promising Indian Mutual Fund Industry through many ambiguous regulatory changes. He scrapped the load regime that made this sector unhappening in terms of employment &further very unfortunate spate with the insurance regulator, IRDA over ULIP products finally forced the mutual fund business on fringe. Apart from jeopardizing the business, he outgrew the credible impression of fund management in India. Following the too much technical line, no big hope can be conceive from the new Chairmen of SEBI, U.K.Sinha…most of his announcement are equally ambiguous and unusual like predecessor and holds no bright prospects at all. Without any reversal on entry loads, he has plan to widen the geographical spread of mutual fund business, which is completely ironical…another big fatal, he is going to make by pushing the investments by foreign pension and retirement funds on the line of global markets. Ruling out a review on the asset qualities and nature of funds with an extra regulatory shortfalls, here in India, mutual funds’s ordeal is still seems far from being over.

Presently, Indian financial market is grappling with many awkward regulatory instances-a swift appropriation is worthwhile in some area by little more supplementation of regulatory measures and at other end, relaxation to let them work more freely and in accordance to situation instead of popular demands. As the entry of third generation private sector banks and many other reforms are on hold, government must collaborate with regulators much efficiently and without thinking of deviating political compulsions to forward ahead the Indian financial sector from this transition. Integrity and performance by the three regulatory arms of Indian finance-RBI, SEBI and IRDA will decide the overall growth of Indian economy in coming years. The unquiet regulation can lead to dooms, so it’s terrible and undeserving…an efficient regulation instead can further the broader task, so government should choose later and let make the ground clear for good and impartial business. But in meantime, we have to wait to see when and how the financial regulation will be streamlined…
Atul Kumar Thakur
Tuesday, May 23, 2011, New Delhi
Mail: summertickets@gmail.com