June, 2016
Issue No. 7
  1. Raghuram Rajan Redux: Give RBI governor another term, ignore Subramanian Swamy’s pseudo-patriotism

    Raghuram Rajan was appointed 23rd governor of Reserve Bank of India in September 2013 for a three-year period, amidst economic turmoil. Since then, things have improved substantially, the RBI has contributed to the turnaround and Rajan has lent credibility to India’s economic policy making team. It is important that he continues. The government can shore up international confidence in India’s economy by announcing Rajan will be given a second term. Being holier than thou on patriotism – of which, unfortunately, there’s been an epidemic lately – is outside the ambit of rational debate as the accused person can respond in kind and claims can never be settled. Prime Minister Narendra Modi should ignore ill-informed opinion and extend Rajan’s term.

    Source: The Times of India, May 19, 2016

  2. RBI’s Luddite licensing

    In November 2014, when the RBI announced that it would license a new kind of banks called payment banks, only 41 applications came in. Many of the originally buoyant applicants dropped out one after another. Cholamandalam Finance, run by the level-leaded Murugappa group from the South, was the first to drop out. Then it was the flamboyant Dillip Shanghvi and his brother-in-law Sudhir Valia, who seemed hell-bent on wasting a small part of their considerable wealth on banking – after wind farms (investing in Suzlon) and finance (Fortune Financial) – but they too sobered up and decided to drop the payment bank idea. Finally, Tech Mahindra, a software company, also went out of the race. So, what is wrong with the payments bank idea? The RBI, evidently, has created a stunted business model by which payment banks are supposed to shoulder the noble objective of financial inclusion without being able to make much money. The payments-banks fiasco once again shows, how little has changed in the RBI under a supposedly go-getting governor.

    Source: Debashis Basu, Business Standard, May 29, 2016, the writer is the editor of Moneylife

  3. The risks of creating giant banks

    The cult of behemoth banks has lost many followers since the global financial crisis. However, finance minister Arun Jaitley has decided to push for the creation of a new banking giant by merging the State Bank of India with its associate banks. The stock markets have already been told about this. The merger move comes at a time when the most important issue facing Indian banks—and the Indian economy—is the growing pile of bad loans with the banking system. India right now needs more banking competition rather than more banking consolidation. In other words, it needs more banks rather than fewer banks. This does not mean that there should be a fetish about small-scale lending operations, but to know that large banks are not necessarily better banks.

    Source: Mint, May 20, 2016