by admin | May 25, 2021 | Banking, Corporate, Corporate finance, Corporate Governance, Economy, News
By Biswajit Choudhury,
New Delhi : The year leading up to the 2019 general elections was defined by a slowdown in investment, slackening growth, falling GST revenues, the biggest bank fraud and a credit crunch that provoked the most significant crisis in government-RBI relations.
It was topped up by the abrupt resignation of Urjit Patel as the RBI Governor, a rare phenomenon in the banking world. He was immediately replaced by former Economic Affairs Secretary Shaktikanta Das the man who was the vocal face during demonetisation and seen as a ‘yes’ man of the government.
India, meanwhile, continued to be the fastest growing big economy during 2018 with its gross domestic product (GDP) rising at above 7 per cent, after having slipped to 6.7 per cent in the previous financial year, mainly on account of the impact of demonetisation.
Even as it is projected to overtake China by GDP in the coming year, India jumped 23 spots in the World Bank’s Ease of Doing Business rankings to 77th place, continuing its impressive climb on this score for the third year running.
The pace of the country’s GDP growth slowed substantially during the second quarter of the current fiscal to 7.1 per cent, from 8.2 per cent in the previous quarter, mainly on the back of a drop in manufacturing, agriculture and mining. By criteria of gross value added (GVA), which includes taxes and excludes subsidies, growth fell to 6.9 per cent from 8 per cent during the April-June period.
On the inflation front, lower food prices kept headline inflation down, which touched a 13-month low of 3.3 per cent in October, and fell further to 2.3 per cent last month. Core inflation, however, continued to remain elevated.
Following the release of the GDP numbers, US agency Fitch Ratings lowered India’s growth forecast for the fiscal to 7.2 per cent, from an earlier projection of 7.8 per cent rise, “on weaker-than-expected momentum in the data, higher financing costs and reduced credit availability.”
The year witnessed the biggest fraud in Indian banking history with the Rs 14,000 crore scam on state-run Punjab National Bank (PNB) committed over a number of years and reported in February. The fraud was committed from 2011 till 2017 by illegally issuing letters of undertaking and rolling over foreign letters of credit to diamantaire Nirav Modi and his uncle Mehul Choksi from PNB’s Brady House branch in Mumbai.
Both are currently absconding and Interpol has issued red corner notices against them.
Twin storms hit the country in September — rising fuel prices that climbed new highs daily and a falling rupee that spiralled down to new lows against the US dollar before recovering somewhat towards the end of the month.
The year’s global protectionist measures unfolding through the US-China trade war, along with high crude oil prices, put the rupee on a downward spiral, dragging it down to a record low of 72.98 against the US dollar on September 18.
According to analysts, concerns over a rise in inflation rate, growing protectionism in global trade and an outflow of foreign funds from the country’s equity markets have had an adverse impact on the Indian currency. It fell nearly 15 per cent since the start of the year to become Asia’s worst-performing currency.
On the other hand, transport fuel prices in the country began going up almost daily since August 1, incessantly recording new highs across the country, even as the UK Brent crude oil climbed to $86 per barrel. A weak rupee and high excise duty added to the heady mix that made for high petrol and diesel prices in the country before beginning to fall from late October in tandem with global crude prices.
“The widening of the current account deficit amidst tighter global financing conditions should put downward pressure on the currency, and we forecast the rupee to weaken to 75 against the dollar by end-2019,” Fitch said.
The defining moment, however, came in December with the resignation of the RBI Governor nine months prematurely and the first such instance since Independence, which prompted Patel’s predecessor Raghuram Rajan to say that it should be a cause of concern for all Indians.
The historic tensions in government-central bank relations were re-ignited in October when, in a public lecture, RBI Deputy Governor Viral Acharya talked about the independence of the Reserve Bank, arguing that any compromise could be “potentially catastrophic” for the economy.
The government responded with the Finance Ministry seeking discussions with the central bank under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI Governor, who then summoned a meeting of the bank board.
Central to the issue was the government’s demand that the RBI hand over its surplus reserves by making changes to the “economic capital framework”. Analysts noted that the government’s demand came in the face of a huge fiscal deficit and the need to boost the economy in an election year.
Prime Minister Narendra Modi met with Governor Patel before the board meeting and what emerged on November 19 was seen as settling the debate on the central bank’s autonomy and clearly establishing the government as a stakeholder in policy making.
The current liquidity crunch, particularly among non-banking finance companies, follows a series of defaults in late October by the privately-run IL&FS.
In hindsight, the words of Sudipto Mundle on the Board of Governors of the National Institute of Public Finance and Policy, after the November board meeting proved prophetic.
“The RBI-government fight has been pushed down, abated for now and postponed, but the NPAs issue continues to remain,” he said.
(Biswajit Choudhury can be reached at biswajit.c@ians.in)
—IANS
by admin | May 25, 2021 | Corporate, Corporate finance, Corporate Governance, Economy, Finance, News, Politics
Mumbai : Admitting to differences with Urjit Patel, who quit as RBI Governor, Finance Minister Arun Jaitley on Thursday said the government is the sovereign body for managing the economy and RBI Governors have exited if differences were not settled.
“If you look at the history of the RBI, you had several incidents in the past where governments have had a different view from what the RBI has had and then those differences either get settled or the Governors have made way,” he said at a conclave here.
Addressing the India Economic Conclave 2018 via satellite link, Jaitley said the government had a particular opinion on two or three major issues relating to credit and liquidity in the market but was failing to communicate with the RBI and getting them addressed.
“Every person involved in some kind of a business activity, whether its financial, manufacturing or services sector or the MSME sector or even in agriculture, will tell you that they were facing difficulties as far as credit and liquidity is concerned,” the Minister said.
Jaitley said the RBI has the responsibility as far as credit and liquidity is concerned and it is not an issue of confrontation if the “sovereign accountable government” forces the issue for a discussion and redressal by the RBI. Else, the government would fail in its responsibility.
“We are the sovereign government and most important stakeholder as far as management of the economy is concerned and therefore a discussion with an important institution… to tell it that it’s a part of your functions which you must seriously look at, how is it destruction of the institution,” he said replying to a query on the charge that the government was destroying institutions.
Quoting India’s first Prime Minister Pandit Jawaharlal Nehru’s letter to the then RBI Governor, he said, “The economic policy of the country is determined by the elected government. The RBI monetary policy functions are autonomous and independent but other policies of the RBI certainly must be in tandem with the economic policy of the country.”
He said if the government policy is to encourage the MSME sector, the credit policy of India cannot be, “No, we will not give credit to the MSMEs”. In live democracies, concerns of the market and the economy have to be communicated and addressed , he added.
Taking a dig at former RBI Governor Raghuram Rajan, who wrote the book “I Do What I Do”, Jaitley said, “It will be a dialogue of the deaf because you won’t be then giving the concerns to each other and not listening to each other.”
—IANS
by admin | May 25, 2021 | News, Politics
(Photo Courtesy: Reuters/ Danish Siddiqui)
Mumbai : Reserve Bank of India (RBI) Governor Urjit Patel resigned on Monday with immediate effect, citing “personal reasons”, setting of a major crisis in India’s politico-economic sphere, even as his various predecessors hinted that the move was rooted in the recent controversy involving the government and the central bank.
Patel’s resignation comes in the backdrop of the ongoing tiff between the government and the central bank over the liquidity and credit crunch in the economy that provoked an extraordinary meeting of the RBI board on November 19.
“On account of personal reasons, I have decided to step down from my current position effective immediately,” Patel said in a brief statement released by the RBI.
Patel had taken charge as Governor on September 4, 2016, for a three-year term, following Raghuram Rajan’s decision not to seek a second term which had almost become the norm with earlier Governors.
The historic tensions in government-central bank relations were reignited in October when, in a public lecture, RBI Deputy Governor Viral Acharya talked about the independence of the Reserve Bank, arguing that any compromise could be “potentially catastrophic” for the economy.
The government responded with the Finance Ministry seeking discussions with the central bank under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI Governor, who then summoned a meeting of the bank board.
The government’s differences with the RBI centres on four issues – it wanted liquidity support to head off any risk of a credit freeze, a relaxation in capital
requirements for lenders, relaxing the prompt corrective action (PCA) rules for banks struggling with accumulated non-performing assets (NPAs or bad loans) and support for micro, small and medium enterprises.
Central to the liquidity issue was the government’s demand that the RBI hand over its surplus reserves by amending its “economic capital framework”. Analysts noted that the government’s demand came in the face of a huge fiscal deficit and the need to boost the economy in an election year.
The RBI’s central board has 18 members, which includes the Governor and his four deputies as full-time official directors, while the rest have been nominated by the government, including the Economic Affairs and Financial Services Secretaries.
Prime Minister Narendra Modi met with Patel before the board meeting and what emerged on November 19 was seen as settling the debate on the central bank’s autonomy and clearly establishing the government as a stakeholder in policy making.
On the issue of reserves, the RBI board decided to form an expert committee to examine its economic capital framework, which will decide the amount of reserves it can maintain, handing over the balance to the government.
On the matter of relaxing the PCA norms for banks with bad loans, it decided that the issue will be examined by the RBI’s Board for Financial Supervision.
Eleven of the 21 state-run banks are under the PCA framework, while NPAs accumulated in the Indian banking system have touched a staggering Rs 12 lakh crore.
“The RBI-government fight has been pushed down, abated for now and postponed, but the NPAs issue continues to remain,” Sudipto Mundle on the Board of Governors of the National Institute of Public Finance and Policy had said following the RBI board meeting.
Describing Patel’s resignation as a statement of protest, former RBI Governor Raghuram Rajan said the government needs to understand what prompted the exit.
“It’s probably only the second resignation in RBI’s history, may be the first explicit resignation, and therefore we have to look at the circumstances that have led to it. It’s a statement of dissent and the government has to be very careful in dealing with it…so that the autonomy of the institution as well as the credibility is preserved,” Rajan told a news channel.
He said the act of resignation is the “ultimate weapon” in a government appointee’s portfolio and they do not exercise it lightly.
“To that extent we must look at this decision and understand why Dr Patel, who was appointed by this government, essentially exercised this particular option,” he added.
Another former RBI Governor, C. Rangarajan, worried about the fallout of Patel’s quitting on the market.
“It is saddening since the resignation of RBI Governor will have its impact on the financial market. Though he (Patel) has cited as personal reasons for quitting, obviously there must have been some other reasons for his resignation,” Rangarajan said.
Congress President Rahul Gandhi said Patel’s quitting is a sign that the government is getting increasingl desperate.
“The government is taking measures that are dangerous for our country. The RBI Governor has resigned because he is protecting the institution of the RBI and he is not able to function. Taking away the reserves from the RBI to save your skin is an act that is against this nation,” he said.
“I am very-very proud that people in all walks of life and all institutions are standing up. We are not going to tolerate what is happening in the CBI, what is happening in the RBI and what is happening to every institution in this country, and all of us are saying this in one voice,” he added.
Asked about the government-RBI tiff, former Chief Economic Advisor Arvind Subramanian told reporters here on Saturday that the central bank’s autonomy must be protected because the country will benefit from strong institutions.
“I have myself advocated that RBI should play a pro-active role, but its surplus funds should not go towards routine financing of spending and deficit financing — that would amount to raiding the RBI,” he added.
On the RBI board, with a majority of government nominees, the former CEA said: “I think that part of maintaining a real autonomy is not to politicise the board. The board should not be politicised. Not only it must not be done, it must not be seen to be done either.”
—IANS
by admin | May 25, 2021 | Corporate, Corporate finance, Corporate Governance
Urjit Patel
New Delhi : Appearing before the Parliamentary Standing Committee on Finance, RBI Governor Urjit Patel on Tuesday said that the effect of demonetisation was temporary while he will respond to issues related to the RBI’s autonomy and reserves in the next 10 to 15 days in the midst of differences with the government.
He told the members that the economy was faring better than the pre-demonetisation period in the “after phase” of demonetisation with the adverse effects receding, sources said.
The Reserve Bank of India’s (RBI) Governor’s appearance also came in the midst of a government-central bank tussle over autonomy, reserves to be maintained by RBI and liquidity concerns and he has been asked to give his response on these issues besides control of institutions (in respect of frauds in banks) and lending to MSME sector. It had led the central bank to flag autonomy concerns.
“He will reply in 10 to 15 days,” the sources said after the two-and-a-hour meeting.
Patel appeared before the 31-member panel headed by Congress leader M. Veerappa Moily on Tuesday to brief on the impact of demonetisation, non-performing assets (NPAs) of public sector banks and state of economy, among other issues.
The RBI Governor said the banking regulator will consider the international practice in terms of reserves kept by central banks and will share its views in its response. The government believes RBI is sitting on extra reserves which can be used to fuel growth.
While Patel maintained there was no conflict with the central government, the source said he warned the panel members, which included former Prime Minister Manmohan Singh, of the possibility of global trade war leading to a currency war.
On domestic economy, Patel is learnt to have said that the Indian economy is stabilising and is in a comfortable position with positive indicators like rising GDP, falling crude oil prices, credit growth up 15 per cent, inflation down and food inflation below 2 per cent.
“Patel said for every single dollar drop in crude oil price, there is a fall of $800 million in the country’s current account deficit (CAD) annually. You can calculate the overall benefit in terms of CAD for the more than $20 decline in oil price,” he said.
—IANS
by admin | May 25, 2021 | Corporate, Corporate Governance
Urjit Patel
New Delhi : Breaking his silence over the Rs 13,540 crore fraud at state-run Punjab National Bank (PNB), the Reserve Bank of India (RBI) Governor Urjit Patel on Wednesday said the central bank, as the guard of people’s deposits at banks, will do its best to break the “unholy nexus”.
“I have chosen to speak today to convey that we at the RBI also feel the anger, hurt and pain at the banking sector frauds and irregularities. In plain simple English, these practices amount to a looting of our country’s future by some in the business community, in cahoots with some lenders,” Patel said while delivering a lecture at the Gujarat National Law University.
“As safeguards of your deposits at banks, and starting with the Asset Quality Review of banks announced by the Reserve Bank in 2015 — since ably conducted by our supervisory teams and as acknowledged objectively by experts of reputed multilateral agencies, we are doing all we can to break this unholy nexus,” he said.
Expressing deep anguish over the frauds in public sector banks (PSBs), Patel said the RBI will do its duty and even consume the poison and face brickbats.
“If we need to face the brickbats and be the Neelakantha consuming this poison, we will do so as our duty; we will persist with our endeavours and get better with each trial and tribulation along the way,” Patel said.
—IANS
