We have seen many Governors earning name and fame. But we have to see which Governor has helped the economy in growing on permanent basis and who has strengthened roots of our economy. We must analyse pros and cons of the matter, assess merits and demerits of Rajan regime,i identify strength, risk and threat probabale due to Rajan and finally it is to be ascertained whether awarding him with second term will prove beneficial for the country or prove to be a losing game.
We cannot allow politicians like Mr Subramanium Swami to malign image of a public servant , that too person like Rajan holding a prestigious post of RBI Governor. We cannot allow propaganda war or media war against a post like RBI Governor. At the same time we cannot totally ignore allegations against Mr Rajan put forward by Mr. Swami.
I simply stress here to say that Government must restrain Swami criticising RBI Governor in public domain. Any Government does not like any of his party men criticising its own government in public domain . Similarly it should not like criticism of any public servant by any politician in public domain . There is a properly defined and set procedure for moving against an erring public servant and it must be followed by all to maintian minimum decency and decorum in the matter of governance.
Here I would like to say that our country was facing rating downgrade in the year 2013 due to decade long misrule of UPA government led by Finance Minister like Mr. P Chidambram and his predecessors. Country lost lacs of crores of rupees in a chain of scams unearthed by CAG, opposition parties , Team Anna , social workers, RTI experts, lawyers like Prashant Bhusan and Mr. Subramanium Swami. Image of our country was tarnished and fully blackened during UPA rule . Environment became unconducive for growth in business, for new investment in business and for FDI in India .
During UPA rule, IIP figure came to negative zone. Inflation went beyond control . Foreign exchange reserve faced erosion . Value of Indian currency faced sharp and faster erosion. Exporters and importers started facing problems due to unbearable volatality in value of Indian rupee and rise in value of dollars in International market . Current account deficit and Fiscal deficit went above tolerable and sustainable limits. Rating agencies started threatening downgrading of sovereign rating of our country. UPA government in the year 2013 got criticism from all corners on all fronts.
When the situation went beyond control , the then clever Finance Minister Mr. Chidambram appointed Mr. Raghuram Rajan ,world famous economist as RBI Governor. He took this step in the last leg of his government .
Here it will not be out of place to mention that it was bad policies of his government and mismangement and exploitation of PSU banks by FM Mr. Chidambram that health of public sector banks started facing capital crisis year after year and banks started facing abnormal rise in bad assets . Mr. Chidambram did not allow Chiefs of PSU banks to treat bad assets as bad assets and this is why a large amount of bad assets were concealed by clever and corrupt bankers. It became culture of every banks to hide bad assets and show them all as standard so that they need not make any provision for these bad assets as required under prudential norms set by RBI.
All PSU banks indulged in fraudulent exercise and they under a stretegy made lesser provision to artificially inflate annual net profit and to earn blessings of corrupt FM of that time. In order to book higher credit growth they were forced to lend in infrastructure projects. Banks started using short term funds for long term uses and thus invited liquidity crisis. Rising bad debts hidden in balance sheets added fuel to fire.
As soon as Mr. Rajan took charge of RBI as Governor , things started moving in positive direction due to temporary , permanent , and faster steps taken by clever Mr. Rajan to stop fall in Rupee price , to control fiscal deficint ,to contain rise in bad debts and to bring inflation in control .
A few months after appointment of Mr. Rahuram Rajan as Governor of RBI, UPA government lost the election due to its misdeeds and Mr. Narendra Modi led NDA government came to power in the year 2014. Mr. Arun Jaitley became Finance Minister in Government led by Mr. Narendra Modi and both worked in cooperation with RBI Governor Mr. Rajan for almostt two years. Economy moved up and progress were visible in every parameter including inflation, fiscal deficit , rupee value etc.
Though there was huge pressure from the side of Government and business class for reduction of interest rate , Rajan did so in phased manner so that purpose of containing inflation could also be served along with executing the advice of Modi govrnment. There was overall good understanding among all three stalwarts. Cleaning of banks also started and geared up gradually.
Here I would like to express that any more reduction in interest rate may prove deterimental and suicidal step for Indian economy from my point of view. Low interest rate regime may prove helpful to rich class business community to some extent, but in the long run it will cause much more damage to the economy , to savings culture of people of India and cause consequent erosion in investment capacity of the government.
A country cannot propsper on permanent basis if it has no adequate resources for investment and that for expenditure and spendng on social welfare schemes. Similarly savings is the source of fund for public sector banks and if people of India start putting their savings in other better avenues, banks will face liquidity problem as well as its capacity to lend will be adversely affected. And when bank's capacity to lend is reduced, GDP growth will also fall. Obviously FM and the government will find it very difficult to save banks from further damage , further detrioration in health and final disaster if they contrinue to cut interest rate .
In my view banks can invest in long term projects only if it is able to get long term deposits from savers. And banks should offer at least 10 percent rate to savers and there is no harm if lending rate goes up due to this to some extent. Because role of interest in majority of projects is negligible in earning profit and in its sustenance. But role of interest rate is considerably higher in survival and sustenance of pensioners and people whose family is run on interest income on their hard earned business income or terminal benefits for salaried class people.
It is Mr. Rajan who ordered Asset quality Review of PSU bank of large 150 borrowal accounts and adivsed banks to consider bad accounts as pointed out by RBI auditors as Non Performing Assets. This forced banks to treat these accounts as NPA and make higher provisions for them which resulted in loss to some bank or erosion in profits of almost all banks. Due to this bank officials who were blindly distributing bank's fund as charity to persons and companies they liked were forced to put a check point on reckless lending.
Bank officers were forced to stop slippages and recover money from wilfull defaulters. He advised government to make legal set up effective and active to help banks in recovering money from defaulters.
Government came out with Bankruptcy and Insolvency Code 2016 to create an environment of credit discipline and inculcate good habits in business community and to ensure repayment culture which was spoilt by past governments. Government has introduced amendment bills in Parliament seeking improvement in DRT act and SARFACIE Act to make them banker friendly and make them as curse for cheater borrowers of banks. All taken together will help in beinging Achhe Din for banks.
But Corrupt top officials, corrupt business houses and corrupt politicians who were looting banks for their self interest did not find it good that RBI head Mr. Rajan become strict in compliance of set guidelines and identification of NPA as per preudential norms set by RBI.
Business houses and politicians who were getting loan after loan and who were not repaying loan in time were getting exposed and facing threat of legal action and humiliation in business community. They came together and planned ways to eliminate Rajan from picutre who forced Banks to change from acting as bad of roses to act as bad of thorns for defaulters. They could not digest compliance of rules by Rajan. And hence Mr. Swami portrayed the picture of Rajan as anti-national and a hinderance in the path of low rate regime.
To ilustrate, I submit one case for your study.
A patient goes to a Doctor and after examining all patholgical tests, the doctor prescribes sour medicine and surgical operations to cure the patient. This doctor is considered a beast by patient and anti-human. On the other hand if the same patient goes to another doctor who after examining all symptoms , says that patient is ok in all respect and need not take any medicine. Rather he advises to take sleeping pills , drugs and wine to forget sickness.
After some time patiens gets cure in first case whereas on the other hand the same patient may die in case of obeying advice of other doctor. Rajan is acting similar to first doctor and hence rejected by the banking patient who is addicted to taking wine, drugs and sleeping pills .
On the other hand FM like Chidambram preferred second line of action and he managed all Governors of the past to a great extent in following his line of action. As a result of his ill-advice , all banks are now in worst health condition and likely to collapse.
Rajan committed a blunder by exposing critical sickness inflicted in body of banks and by prescribing sour medicine , painful injection into bank's body and by carrying out surgical operation on PSU banks to remove evil culture of concealment and window dressing. He in cooperation with Modi government stopped culture of selling post of ED and CMD which used to take place during UPA regime. He helped government in formation of Bank Board Bureau headed by hard core honest and sinceere person Mr. Vinod Rai for improving health of banks.
Now after end of Rajan's tenure , it will be hard nut to crack for new comer to cure the ailing banking system and to set right the economic system which was ruined by past governments. I say so because evil culture in lending is deep rooted in banking culture and it is not easy for anyone to stop rising trend in NPA .
New comer may again resort to art of restructuring and evergreening of bad loans or selling of bad loans to ARC to conceal bad loan in another bottle and inflate profit as done in the past. But there is no doubt in it that bomb of NPA has to explode , sooner or the later.
Our country run on the basis of certificates and banners. Team of Chartered Accountants will be bought to certify bad loans as good loans and again all banks will start booking higher false profits by saving provisions on bad loans. But this is not a permancnet solution to the problem banks are facing or country is facing.
Lastly I like to make it clear that I never mean to say that alleged guilt of Rajan should be ignored only because he has taken some good steps to improve health of economy and that of banks. I rather feel that all charges levelled against Mr. Rajan by Mr. subramanium Swamy must be investigated and proper action must be taken if needed. But dirty politics on continuance of a person like Mr. Rajan inparticualr or on any governent officials in general will give rise nothing but a chain of evil culture where politicians will bark upon public seervants to serve their self motive and get their illegal work done.
Ultimately this invisible fear of humiliation promotes a culture of flattery and bribery in administrative officials. It is open secret , that good officers are subjected to torturous transfers and face rejection in promotion processes if they do not flatter to their bosses in political circle.
IAS and IPS officers are indulged in flattery to their ministers at the cost of national interest. If Swami like politicians continue to attack top officials , culture of flattery and bribery will rise more and more and all efforts to contain and control corruption will go in vain.
Country will progress only by inculcating good cultre in all departments where good workers can perform and bad workers are ignored or removed. WE have to create an environment where all workers can work without fear of political intervention , repercussions and without fear of getting torturous transfers or rejection in promotion processes . Until HR policies are made performance oriented and until flattery is given a final good bye , we cannot hope of any reformation and transformation in the system.
I hope Mr. Narendra Modi who is sincere, honest and hard worker for the progress of the country and for the comfort of common men will take cognizance of evil design of Mr. Swami and take appropriate corrective action to stop recurrence of the same.
Here are 10 points Mr. Raghuram Rajan stated in his letter addressed to the RBI team-
1) When I took over, India was labelled one of the 'Fragile Five'
2) I laid out an agenda for action and a new monetary framework.
3) We focussed on bringing inflation down and raising forex reserves.
4) My plan took on the licensing of niche and general banks by committees.
5) I undertook the creation of the Bharat Bill Payment system and the Trade Receivables Exchange.
6) Extended payments to all through mobile phones.
7) Developed a large loan database to better map distress in this area.
8) Today inflation has been halved and savers earn positive interest after a long time.
9) Currency has stablized and government has launched a 40 year bond for the first time.
10) The new Bank Board Bureau has been instrumental in creating a structure for PSBs.
Here in below is full text of letter written by RBI governor Mr. Rajan to his staff:--
Message to RBI staff from Dr. Raghuram Rajan.
Dear Colleagues,
I took office in September 2013 as the 23rd Governor of the Reserve Bank of India. At that time, the currency was plunging daily, inflation was high, and growth was weak. India was then deemed one of the “Fragile Five”. In my opening statement as Governor, I laid out an agenda for action that I had discussed with you, including a new monetary framework that focused on bringing inflation down, raising of Foreign Currency Non-Resident (B) deposits to bolster our foreign exchange reserves, transparent licensing of new universal and niche banks by committees of unimpeachable integrity, creating new institutions such as the Bharat Bill Payment System and the Trade Receivables Exchange, expanding payments to all via mobile phones, and developing a large loan data base to better map and resolve the extent of system-wide distress.
By implementing these measures, I said we would “build a bridge to the future, over the stormy waves produced by global financial markets”.
Today, I feel proud that we at the Reserve Bank have delivered on all these proposals.
A new inflation-focused framework is in place that has helped halve inflation and allowed savers to earn positive real interest rates on deposits after a long time. We have also been able to cut interest rates by 150 basis points after raising them initially. This has reduced the nominal interest rate the government has to pay even while lengthening maturities it can issue – the government has been able to issue a 40 year bond for the first time. Finally, the currency stabilized after our actions, and our foreign exchange reserves are at a record high, even after we have fully provided for the outflow of foreign currency deposits we secured in 2013. Today, we are the fastest growing large economy in the world, having long exited the ranks of the Fragile Five.
We have done far more than was laid out in that initial statement, including helping the government reform the process of appointing Public Sector Bank management through the creation of the Bank Board Bureau (based on the recommendation of the RBI-appointed Nayak Committee), creating a whole set of new structures to allow banks to recover payments from failing projects, and forcing timely bank recognition of their unacknowledged bad debts and provisioning under the Asset Quality Review (AQR).
We have worked on an enabling framework for National Payments Corporation of India to roll out the Universal Payment Interface, which will soon revolutionize mobile to mobile payments in the country. Internally, the RBI has gone through a restructuring and streamlining, designed and driven by our own senior staff. We are strengthening the specialization and skills of our employees so that they are second to none in the world. In everything we have done, we have been guided by the eminent public citizens on our Board such as Padma Vibhushan Dr. Anil Kakodkar, former Chairman of the Atomic Energy Commission and Padma Bhushan and Magsaysay award winner Ela Bhatt of the Self Employed Women’s Association.
The integrity and capability of our people, and the transparency of our actions, is unparalleled, and I am proud to be a part of such a fine organization.
I am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my three year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished. While all of what we laid out on that first day is done, two subsequent developments are yet to be completed. Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed. Moreover, the bank clean up initiated under the Asset Quality Review, having already brought more credibility to bank balance sheets, is still ongoing. International developments also pose some risks in the short term.
While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016. I will, of course, always be available to serve my country when needed.
Colleagues, we have worked with the government over the last three years to create a platform of macroeconomic and institutional stability. I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit. We have made adequate preparations for the repayment of Foreign Currency Non-Resident (B) deposits and their outflow, managed properly, should largely be a non-event. Morale at the Bank is high because of your accomplishments.
I am sure the reforms the government is undertaking, together with what will be done by you and other regulators, will build on this platform and reflect in greater job growth and prosperity for our people in the years to come. I am confident my successor will take us to new heights with your help. I will still be working with you for the next couple of months, but let me thank all of you in the RBI family in advance for your dedicated work and unflinching support. It has been a fantastic journey together!
With gratitude
Yours sincerely
Raghuram G. Rajan
As Rajan ends speculation on his continuance, Hindustan Times takes a look at his achievements as the central bank’s chief:
Stabilising Rupee: The rupee, which weakened to a record 68.80 against the dollar in August 2013, stabilised over 10% between September and December 2013 after a number of RBI measures taken on the day of his joining the central bank.
Beefing Up Reserves: Today, India’s foreign exchange reserves are at a record high of $363.23 billion as on June 10.
Easier Banking: Rajan also released on-tap licensing to ease the process of universal bank applications that enable services such as payments via mobile phones.
Inflation-focused Monetary Policy: Under his governorship, the RBI came out with a new monetary framework that focused on bringing inflation down and raising of Foreign Currency Non-Resident (B) deposits to bolster foreign exchange reserves.
Inflation: Rajan’s sustained policy focus helped the RBI bring down inflation to below 5%. Under him, a new monetary framework that focused on bringing inflation down was formalised.
Interest Rates: Lower inflation and stability in currency markets helped Rajan bring down key repo rate to a five-year low. This helped the economic growth and consumer spending.
Outside the RBI
Rajan predicted the 2008 global financial crisis. In 2005, at an event honouring Alan Greenspan, who was about to retire as chairperson of the US Federal Reserve, Rajan delivered a paper on “Has Financial Development Made the World Riskier?”, and he argued that the disaster might be looming.
IMF chief Christine Lagarde said at an RBI event in March 2015 that the world should have listened to Rajan.
Indian Express writes about unfinished agenda of outgoing Mr. Rajan
His unfinished agenda
* Monetary policy committee that will set policy framework is yet to be formed
* The bank clean up initiated under the Asset Quality Review, is still ongoing
* Navigate the country through the Federal Reserve’s interest hike cycle
Risks looming large
Brexit: On June 23, Britain will vote whether it wants to remain a part of the European Union, or leave. In the near term, an exit could will heighten global volatility, thereby impacting capital flows into emerging markets and could have a currency impact in the longer run. India has a big trading corridor with the EU.
FCNR bonds: A big risk could be the redemption of the Foreign Currency Non-Residential (FCNR) bonds issued by Rajan way back in October 2013 to protect the rupee from its worst slide in decades. The bonds are due for redemption and the currency market could face an impending outflow of $20 billion, which will put the Rupee under pressure.
Inflation risk: The latest policy statement highlights the upside risk to inflation; CPI has been rising due to a rise in food prices while core inflation also remains high.
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