Wednesday, September 4, 2013

I love the Guv and here's what he proposed...

"Any entrant to the central bank governorship probably starts at the height of their popularity. Some of the actions I take will not be popular. The Governorship of the Central Bank is not meant to win one votes or Facebook “likes”. But I hope to do the right thing, no matter what the criticism, even while looking to learn from the criticism. Rudyard Kipling put it better when he mused about the requirements of an ideal central banker in his poem “If” - If you can trust yourself when all men doubt you, But make allowance for their doubting too"

Those were the closing lines of statement of Dr. Raghuram Rajan on taking over office today.  He looks promising, bold, raring to go and take the country along.  Excerpts from his speech:

  • two additional traditions of RBI will be transparency and predictability, through regular communication to public on the broad direction and how RBI's policy actions fit into that direction / framework
  • RBI's mandate from RBI Act to be followed in spirit and a precursor to what is to be expected on Sep 20, his first monetary policy presentation - “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage;”
  • a) well run scheduled commercial banks to get complete free hand on branch banking, b) decision on new bank licences to be announced around Jan 2014, c) qualifying foreign banks in India to be encouraged to move to becoming wholly owned subsidiary structure where they can enjoy near national treatment, d) proposal to reduce the requirement for banks to invest in government securities in a calibrated way, to what is strictly needed from a prudential perspective and e) priority sector lending mandate to adjust to the needs of the economy. Dr Nachiket Mor to head a committee that will assess every aspect of RBI's approach to financial inclusion and to suggest the way forward.    
  • In order to create depth, some amount of position taking or mandating trading is necessary.  If domestically we ban investment which is an act of faith and risk taking, investors would stop providing depth and profits to our economy and take it to foreign shores. It is important to liberalise our markets and as a symbolic down payment the following measures are being announced: (a) exporters will be allowed to rebook cancelled forward contracts to the extent of 50% (up from existing 25%) and importers will now be allowed to the extent of 25% and (b) cash settled 10 year interest rate futures contract to be introduced
  • Rupee internationalization and capital inflows (whoa, we haven't heard the term capital account convertibility in a while!). International trade settlements in rupee, opening up financial markets to invest rupee back in - will be facilitated in good time.
  • a special concessional window to banks to swap the fresh FCNR (B) dollar funds, mobilised for a minimum tenor of three years and over, at a fixed rate of 3.5 per cent per annum for the tenor of the deposit.
  • the current overseas borrowing limit of 50 per cent of the unimpaired Tier I capital will be raised to 100 per cent and that the borrowings mobilised under this provision can be swapped with Reserve Bank of India at the option of the bank at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market. 
  • Loan recovery by banks will be focused on efficiency and fairness – preserving the value of underlying valuable assets and jobs where possible.  However promoters will not have the luxury or a divine right to stay in charge regardless of how badly they mismanage an enterprise, nor will they have the right to use the banking system to recapitalize their failed ventures. Most immediately, RBI will accelerate the working of Debt Recovery Tribunals and Asset Reconstruction Companies.
  • emphasis on the use of the unique ID, Aadhaar for building credit histories, Government to issue inflation indexed Savings Certificates (linked to CPI) for retail investors, Bill payment system (giro based) to bring to reality anywhere anytime payments, mobile based payments, payments using Aadhaar based identification are all on the timetable of RBI

Impressive for the first day, isn't it? I wanted to write a love song for you Guv, but thought your words would be better music to my readers. Welcome and be the change that we so desperately need!